Thanks to Christopher Rupe for his graph here that depicts that nominal GDP increases have been slowing in relation to new debt in the U.S. economy. Debt is apparently being used to finance consumption and/or going toward capital investments that are providing lower and lower returns. Hence, government fiscal and monetary stimulus, both of which use debt as a stimulus, are closing in on a zero effect on GDP. At that point what happens? The debt overhang strangles the economy. One way out is debt repudiation by borrowers, that is, defaults and bankruptcies in the private sector and a big … Continue reading What happens when debt stimulus hits zero?