02/29/24 09:57 AM EST

Shocking Government Debt Figures

Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Let’s continue our government debt discussion we started yesterday. Always uplifting! The Bureau of Economic Analysis's first revision of the Q4 2023 GDP shows a growth of 3.2%, slightly below the initial 3.3% estimate and consensus expectations. This adjustment highlights the U.S. economy's continued expansion, driven by consumer spending, exports, and state and local government spending, despite a rise in imports, which detracts from GDP calculations.

Ultimately, these figures hold little relevance; they are subject to further revisions in the upcoming month. By that time, the focus of market participants will have shifted toward the GDP data for Q1 and beyond, rendering the current details somewhat outdated.

How much coincidental government spending did it take to generate this GDP growth? The U.S. Treasury's records show the national debt escalated from $33,167,334,044,723.16 on September 30, 2023, to $34,001,493,655,565.48 by December 31, 2023. This indicates that to achieve a $334.5 billion increase in the economy during the third quarter, the U.S. took on $834.2 billion in new debt. Therefore, it took $2.50 in debt spending to generate $1 of GDP, which brings us to a thought experiment.

In the last three recessions, the deficit to GDP was 9%. Assume the economy does fall into recession, and the deficit goes to 8% of GDP (currently 6%). If interest rates remain between 5% and 6%, maintaining the current tax system, five years from now, 50% of tax receipts would have to go to interest expense. We warned it would not be uplifting.

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