Not at these growth rates! Bloomberg carried the text of the Fed’s Flow of Funds release for Q4 2010. It shows the annual rates of debt growth, which are currently way, way higher than GDP growth:
State and local government debt rose about 8 percent at an annual rate in the fourth quarter, after a 5½ percent increase in the third quarter. Federal government debt increased at an annual rate of 14½ percent in the fourth quarter; for 2010 as a whole, federal government debt grew a bit more than 20 percent.
GDP growth in Q4 is estimated at 4.1%. At no time in the entire history of Fed releases has annual GDP growth been at 20%, even for one quarter. The growth rate, as you can see in the graphic below, hasn’t been over 10% for a long time.
Source: St. Louis Federal Reserve Bank
With debt growing at 20% and the economy growing at 4% the eventual outcome for the credit rating on U.S. government debt is sadly predictable. On the plus side, turmoil will create all kinds of good investment opportunities—opportunities that systematic investors will have an opportunity to exploit.
