June 6, 2011 (alrroya.com) -- It is a simple statistic that continues to warn of huge economic problems ahead for the United States.
Some economists call it the "marginal productivity of debt (MPD)." It relates the change in the level of all debt (consumer, corporate, government etc.) in a country to the change in its gross domestic product (GDP). However, due to the message it is delivering, most U.S. economists employed in financial institutions, governments and private industry, as well as financiers and politicians, want to ignore it.
And for the U.S. economy and government finances, the MPD (and related variants of it) is continuing to indicate extremely difficult economic times ahead.
I have vague recollections of the MPD concept from my economics classes long ago. But I was re-introduced to it around 2001 by a renowned economist who, during the following few years prior to his passing, became alarmed as to the MPD path of the US. His name was Dr. Kurt Richebächer, formerly chief economist and managing director of Germany’s Dresdner Bank. Dr. Richebächer, was so respected that former US Federal Reserve Chairman, Paul Volcker once said of him that, “sometimes I think that the job of central bankers is to prove Kurt Richebächer wrong," reported the online financial journal, The Daily Reckoning May 15, 2004.
Investigating Dr. Richebächer’s concern further, I wrote an article on my Enlightened Economics blog Jan. 23, 2008, titled, Is the Amazing U.S. Debt Productivity Decline Coming to a Bad End? I found that, “for decades, each dollar of new debt has created increasingly less and less national income and economic activity. With this ‘debt productivity decline,’ new evidence suggests we could be near the end-game....”