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New York - U.S. Growth Would Have Contracted Without Trillions In Government, Consumer Debt: Gundlach

Published on: May 14, 2019 11:30 PM
By: Reuters
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FILE PHOTO: Jeffrey Gundlach, CEO of DoubleLine Capital LP, presents during the 2019 Sohn Investment Conference in New York City, U.S., May 6, 2019. REUTERS/Brendan McDermid/File PhotoFILE PHOTO: Jeffrey Gundlach, CEO of DoubleLine Capital LP, presents during the 2019 Sohn Investment Conference in New York City, U.S., May 6, 2019. REUTERS/Brendan McDermid/File Photo

New York - U.S. growth appears to be based “exclusively” on government, corporate and mortgage debt and the economy would have contracted if the United States had not added trillions in debt, Jeffrey Gundlach, chief executive of DoubleLine Capital, said in an investor webcast on Tuesday.

“Nominal GDP growth over the past five years would have been negative if U.S. public debt had not increased,” said Gundlach. “One thing everybody seems to miss when they look at these GDP numbers ... they seem to not understand that the growth in the GDP it looks pretty good on the screen is really based exclusively on debt - government debt, also corporate debt and even now some growth in mortgage debt.”

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If the U.S. Treasury had avoided increasing its debt then nominal GDP would have been negative in three of the last five years, “even with all of the exact mortgage, corporate, and student loan growth that occurred,” Gundlach told Reuters in an email, following the webcast.

“If those non-Treasury debt categories had not grown, either, GDP would have been very negative.”

Nominal GDP rose by 4.3%, but total public debt rose by 4.7% over the past five years, Gundlach noted.

Against this debt backdrop and financial markets “addicted to Federal Reserve stimulus,” these are “very, very dangerous times” for the next U.S. recession, Gundlach, who oversees more than $130 billion in assets at DoubleLine Capital, said.

Gundlach said although the United States is not headed into recession anytime soon, there are some weaknesses showing up in the U.S. economy. He cited the Citi Economic Data Change Index which has fallen to its lowest level since the financial crisis.

Gundlach said U.S. stocks and bonds are headed for a volatile environment and that he is “comfortably” long gold. He has been long gold since the $1,190 level, he said. Gold prices are headed toward $1,300 an ounce.



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Read Comments (7)  —  Post Yours »

1

 May 15, 2019 at 07:11 AM Anonymous Says:

Every chasidisha real estate dealer lives off leverage. They buy then refi and take out home loans etc then use that leverage to buy another building and do the same...
when the bubble poops you shpilers will all be in hot water with such much debt .
Good luck

2

 May 15, 2019 at 09:42 AM TRump: "I love debt" Says:

Deficit spending!

3

 May 15, 2019 at 10:18 AM Meloah Says:

This means that all the gains of the stock market in the past 5 years are an illusion based on steroids. Actually, if we had been in a recession for the past 5 years, revenue could have been down some 30% and earnings down 50%. With no growth, the PE ratio would have declined to 10x from today's 21x. If you cut earnings by half, and pe ratio by half, the stock market would have only 25% of the value it carries today...The stock market is hugely affected by unrealistic earnings and pe multiple.

When the bubble burts, it will lead to hyperinflation (government and companies can't pay their debt) and depression (due to high interest rates, bankruptcies and layoffs)...a downward spiral for which the government can't stop (due to declining demographics).

But Mashiach will come before, as it says before the birth pangs arrive, he comes.

4

 May 15, 2019 at 12:12 PM Anonymous Says:

Reply to #3  
Meloah Says:

This means that all the gains of the stock market in the past 5 years are an illusion based on steroids. Actually, if we had been in a recession for the past 5 years, revenue could have been down some 30% and earnings down 50%. With no growth, the PE ratio would have declined to 10x from today's 21x. If you cut earnings by half, and pe ratio by half, the stock market would have only 25% of the value it carries today...The stock market is hugely affected by unrealistic earnings and pe multiple.

When the bubble burts, it will lead to hyperinflation (government and companies can't pay their debt) and depression (due to high interest rates, bankruptcies and layoffs)...a downward spiral for which the government can't stop (due to declining demographics).

But Mashiach will come before, as it says before the birth pangs arrive, he comes.

3 of the last 5 years have been negative.
Of course! Those were Obama years!

5

 May 15, 2019 at 12:24 PM Educated Archy Says:

Reply to #3  
Meloah Says:

This means that all the gains of the stock market in the past 5 years are an illusion based on steroids. Actually, if we had been in a recession for the past 5 years, revenue could have been down some 30% and earnings down 50%. With no growth, the PE ratio would have declined to 10x from today's 21x. If you cut earnings by half, and pe ratio by half, the stock market would have only 25% of the value it carries today...The stock market is hugely affected by unrealistic earnings and pe multiple.

When the bubble burts, it will lead to hyperinflation (government and companies can't pay their debt) and depression (due to high interest rates, bankruptcies and layoffs)...a downward spiral for which the government can't stop (due to declining demographics).

But Mashiach will come before, as it says before the birth pangs arrive, he comes.

Relax its always been that way.

When the bubble bursts it will lead to hyperinflation? Huh why is that so? Did 2008 lead to hyperinflation? If anything the opposite occurs. Once people don't want to lend there is less money flowing around. Less money means the money multiplier goes down. Lower money circulation can result in DEFLATION not Inflation. You can't raise prices if consumers can't borrow money to pay for it. Now that may be a danger too. But your doomsday predictions do not fit with basic macroeconomics. I suggest you go get an education first.

What kind of declining demographics exist? Not sure what you mean by that stupidity either.

6

 May 15, 2019 at 03:12 PM Meloah Says:

Reply to #5  
Educated Archy Says:

Relax its always been that way.

When the bubble bursts it will lead to hyperinflation? Huh why is that so? Did 2008 lead to hyperinflation? If anything the opposite occurs. Once people don't want to lend there is less money flowing around. Less money means the money multiplier goes down. Lower money circulation can result in DEFLATION not Inflation. You can't raise prices if consumers can't borrow money to pay for it. Now that may be a danger too. But your doomsday predictions do not fit with basic macroeconomics. I suggest you go get an education first.

What kind of declining demographics exist? Not sure what you mean by that stupidity either.

If there are not enough buyers for the U.S. debt, or if interest rates rise significantly to attract buyers, and therefore the amount of additional interest expense increases, how is the U.S. going to finance its operations, or finance the bailout of banks and other institutions and so many consumers that can't afford the higher interest?

Where is the government going to get the money to stimulate the 10-20% drop in GDP (during recession)? That can amount to $2-$4 trillion.

7

 May 15, 2019 at 04:49 PM Anonymous Says:

Reply to #6  
Meloah Says:

If there are not enough buyers for the U.S. debt, or if interest rates rise significantly to attract buyers, and therefore the amount of additional interest expense increases, how is the U.S. going to finance its operations, or finance the bailout of banks and other institutions and so many consumers that can't afford the higher interest?

Where is the government going to get the money to stimulate the 10-20% drop in GDP (during recession)? That can amount to $2-$4 trillion.

Are you addressing USA debt or highly priced equites and leveraged companies? Its two very different dynamics. When individuals or companies have a high debt and / or default there is less liquid in the market. Less money results in deflation as people don't spend since they can't borrow. Lending dries up. That's what happened in 2008. And to top it off investors put money in USA bonds as its a safe haven. So leveraged companies and stocks do not cause inflation when they default. Leverged gains in the stock market while bad won't result in inflation. its exaclty what happned during the great recession. They cause rates to decrease.

Now lets deal with USA debt. You assume there won't be enough buyers. But you need another country where people will go? Where will people go to instead?

8

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