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Slow GDP Growth Brings ‘Shock-Prone’ U.S. Economy: Chart of Day

Oct. 29 (Bloomberg) -- U.S. economic growth is too slow to relieve the financial burden caused by “absurdly high levels” of debt, according to Nick Burns, a strategist at Deutsche Bank AG.

The CHART OF THE DAY shows how the rebound in gross domestic product since June 2009, when the latest recession ended, compares with similar recoveries that started in 2001, 1991, 1982 and 1975. The GDP figures are nominal, excluding the effects of inflation.

Nominal GDP matters far more than real GDP, adjusted for inflation, Burns wrote today in a report. The reason is that nominal growth would make it easier for the U.S. government, companies and households to pay down debt, he wrote.

Total U.S. debt amounted to 358 percent of GDP in this year’s second quarter, according to data compiled by the Federal Reserve. The ratio has more than doubled since the fourth quarter of 1982, when the second recession in three years ended.

The jump in borrowing should have led to a higher-than-average growth rate for nominal GDP, Burns wrote. Instead, “the economy is shock prone” because the current recovery is falling short of post-World War II expansions.

Until debt to GDP falls to a more manageable level, the Fed will be under pressure to print money, Burns wrote. In his view, this indicates a second round of bond buying, or quantitative easing, that the central bank’s policy makers are likely to approve next week won’t be the last.

(To save a copy of the chart, click here.)

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

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