I want to tackle a more evergreen topic, which is the implications on the economy of a high and ever-rising burden of debt. But I want to first differentiate between the deficit and debt.

Deficit--the budget deficit--is simply the differential between what’s going out via spending and coming in via taxes. If you continue to run budget deficits, you add to debt. Debt is a cumulative effect of running deficits.

Now, this is an ongoing debate as to whether there are negative implications of a high and ever rising burden of debt. I’m here to suggest that there are implications, not just looking ahead, but implications that we have already been dealing with.

So let’s talk about debt for a minute. A lot of focus off and on just federal government debt, which is getting up to close to 100% of GDP, but that’s just one portion of debt. Even within government debt you’ve got federal debt, state debt, and local debt. Moving on to the private sector side, you, of course, have households. And then you have multiple varieties of corporate debt. You’ve got overall corporate debt, both financial debt and non-financial debt. Total credit market debt is the addition of all of those forms of debt. And if you add them all up and divide it into US economic growth, US GDP, you get a pretty surprising number: about 350% of GDP represented by total credit market debt. Now, that’s improved--it’s down from about 380% of GDP, but we shouldn’t be cheering 350% of GDP.

Now, the implications that that has for economic growth are, frankly, ones that we have seen over the last 35 years or so since that debt burden has been increasing. Looking back historically, when you’re in a high debt zone and you have a high growth rate in debt, it has had--historically--negative implications for nominal GDP growth, real GDP growth, payroll growth, productivity growth, capital spending.

So when people talk about when are we going to hit some sort of wall, when is it going to start to have an impact, I would argue that it has had an impact because we are seeing a lower rate of growth. It helps to explain why this economic recovery we’re in right now has been the weakest in post-World War II period. When you have that high burden of debt, the interest associated with that, the interest costs associated with that, really crowds-out the ability for the economy to grow at a more robust pace. So, this is not a forward-looking potential problem. This is a problem with which we are already dealing, and, unfortunately, is not a situation likely to improve.