Our Insights

June 2019 – 3 in 3

This month, Jason Weaver discusses demographics, GDP and debt levels. He also gives an update on the business cycle.

Demographics and GDP

If you look at real GDP in the United States, the real GDP is net of inflation. This peaked around the 70’s and 80’s, with the baby boom generation. Germany peaked in the 60’s and 70’s. In Japan, there was a dramatic fall-off with real GDP. As demographics age, it is harder to replace the working population. Thus Japan has experienced low GDP for the last couple decades.

Debt Levels and Rates

The United States government debt 105% of GDP. You would think as debt levels rise, interest rates would rise with it. But as you can see in the chart, debt interest rates were the highest in the 1970’s when levels were the lowest. As interest rates have come down, government debt levels have actually risen. Thus allowing governments to finance more debt because of lower interest rate payments.

Business Cycle Update

Last month, we talked about the world and where we were at in this expansion (or contraction). As we look today at the United States, there is an expansion of an economy that grows between 2-3%. There is a peak economy that grows more than 3%. During a contraction, growth is slowing but is not negative. And a trough usually signals that a recession is coming.

Most developed countries are currently in contraction. The United States is one of those countries. As you look at the business cycle, you can see the different stages. You start with a boom, then peak, then recession and finally a trough. The cycle continues again after that. Currently, the U.S. is embarking on one of the longest expansions we have ever had. In July, the country might surpass what happened in the 1990’s.


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