Blame GDP Decline on Explosion of Debt

NEW YORK (TheStreet) -- The 108-year trend line (1900 to 2008) for real gross domestic product starts at growth of 4.1% a year and ends at 3.1% annual growth. Most of that decline has occurred in the last 54 years (1954 to 2008). From 1900 to 1953, the trend line is nearly flat.

A picture is worth a thousand words. The figure below shows the 12-month growth of GDP, plotted every quarter, for the past 54 years.

Real GDP 12-Month Change (1954-2008) Source: St. Louis Fed

Clearly, the reason for the declining trend line is the very low peaks in the GDP curve over the last 23 years. The incidence of deep minima from 1954 to 1984 was more than offset by very robust recoveries. I don't think it's coincidental that the decline in real GDP growth has coincided with the explosion of debt that has occurred in the same 23 years.

The difference in the rate of GDP decline between the two most recent 27-year periods is evident by comparing these two figures.

Real GDP 12-Month Change (1954-1980) Source: St. Louis Fed

Real GDP 12-Month Change (1981-2008) Source: St. Louis Fed

The graph isn't shown, but including the data for the first two quarters of 2009 would produce a steepening of the trend line in the third figure. In 2036, when another 27-year graph is drawn, one might hope that starting from a low point for 2009 might help produce a positive slope in the trend line. However, starting in a deep hole didn't create positive slopes in either the second of third figures. The real problem is that for most periods of 20 years or longer over the past century, the trend line for GDP is down.