US growth would have contracted without trillions in government, consumer debt: DoubleLine CEO

[NEW YORK] US 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 (gross domestic product) growth over the past five years would have been negative if US public debt had not increased," said Mr 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 US 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", Mr 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 per cent, but total public debt rose by 4.7 per cent over the past five years, Mr Gundlach noted.

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

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

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

REUTERS