U.S. growth would have contracted without trillions in government, consumer debt: Gundlach

FILE PHOTO: Jeffrey Gundlach, CEO of DoubleLine Capital LP, presents during the 2019 Sohn Investment Conference in New York City, U.S., May 6, 2019. REUTERS/Brendan McDermid/File Photo

(Reuters) – U.S. growth appears to be based “exclusively” on government, corporate and mortgage debt and the economy would have contracted if the United States had not added trillions in debt, Jeffrey Gundlach, chief executive of DoubleLine Capital, said in an investor webcast on Tuesday.

“Nominal GDP growth over the past five years would have been negative if U.S. public debt had not increased,” said Gundlach. “One thing everybody seems to miss when they look at these GDP numbers … they seem to not understand that the growth in the GDP it looks pretty good on the screen is really based exclusively on debt – government debt, also corporate debt and even now some growth in mortgage debt.”

If the U.S. Treasury had avoided increasing its debt then nominal GDP would have been negative in three of the last five years, “even with all of the exact mortgage, corporate, and student loan growth that occurred,” Gundlach told Reuters in an email, following the webcast.

“If those non-Treasury debt categories had not grown, either, GDP would have been very negative.”

Nominal GDP rose by 4.3%, but total public debt rose by 4.7% over the past five years, Gundlach noted.

Against this debt backdrop and financial markets “addicted to Federal Reserve stimulus,” these are “very, very dangerous times” for the next U.S. recession, Gundlach, who oversees more than $130 billion in assets at DoubleLine Capital, said.

Gundlach said although the United States is not headed into recession anytime soon, there are some weaknesses showing up in the U.S. economy. He cited the Citi Economic Data Change Index which has fallen to its lowest level since the financial crisis.

Gundlach said U.S. stocks and bonds are headed for a volatile environment and that he is “comfortably” long gold. He has been long gold since the $1,190 level, he said. Gold prices are headed toward $1,300 an ounce.

Reporting by Jennifer Ablan in New York; Editing by Lisa Shumaker and Matthew Lewis

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