These two charts tell you pretty much all you need to know about the state of the US economy. They also, unfortunately, provide some clues as to how this movie will end.

First, from John Mauldin, the state of the U.S. government's finances. The red line is spending. The blue line is tax revenue.

Can you imagine if that was your household?

Second, from Ned Davis, the state of our country's debts, as measured by debt as a percentage of GDP. The little peak to the left was the debt mountain we accumulated during the Great Depression, which took a decade to work off. The, um, bigger peak to the right, is the one we've accumulated now.

So how will this movie end?

Well, in the near-term, we can try to borrow more to fill the hole between the red line and the blue line in the chart on the top. That will postpone the ending and give us a chance to kickstart the economy again.

Of course, every dollar we borrow will also drop down to the chart at the bottom, making the mountain even taller (unless private-market debt shrinks by an offsetting amount--this chart includes both government and private debt).

If we're lucky, in the intermediate term, the economy will start growing more rapidly (blue line turns up) and the government will be able to ease off on spending (red line turns down), making it so we can borrow less every year. If that happy trend continues, we'll eventually only have to deal with the nasty looking chart at the bottom: The debt mountain.

As to that... The accumulation of the debt mountain is what has fueled the impressive GDP growth we've enjoyed for the past 30 years. It's fun borrowing more money, because when you borrow more money, you can spend more money, which is fun!

Of course, in the end, when you've borrowed as much as you can, you have to start paying some of the money back (or, at the very least, borrow less each year than you used to). And to pay the money back, you have to start spending less.



So, again, how do you think this movie will end?

If we're lucky, it will end gradually, in a long, boring couple of decades in which we gradually get our discipline and competitiveness back and bring our finances under control.

And if we're not lucky?

Well, then, the movie will have a more exciting ending.

See Also: We Are So Screwed