Market News – U.S. debt load falling at fastest pace since 1950s
In fact, since the recession ended in June 2009, total U.S. debt has risen at the slowest pace since they began keeping records in the early 1950s. While Washington has taken on a lot of debt since then, the private sector has paid off, written off or dumped on the government almost as much. As a share of the economy, debt has plunged as a consequence of rapid deleveraging by families, banks, nonfinancial businesses, and state and local governments. The ratio of total debt to gross domestic product has fallen from 3.73 times GDP to 3.36 times. In the 11 quarters since the recession officially ended, total domestic debt has risen by just $702 billion, or 1.4%. By contrast, in the 11 quarters before the recession began, in those bubble years of 2005, 2006 and 2007, total debt increased by $10.7 trillion, or 28%.

Comment

The  chart below shows what the story above says, debt is growing slower than anytime since the 1950s (second panel).

Click to enlarge:

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And as this next chart shows, debt to GDP has declined.  However, as the chart title says, Does Anyone See Deleveraging? Private debt share of GDP is at its lowest level since 2004.  Government debt to GDP is at a new high.  Overall debt to GDP is at is lowest levels since 2007.  Are these the levels that one would blow the all-clear signal?  Is this why we had the worst recession since the great depression?  To get back to the 2007 levels?

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As the final chart below shows, overall levels of debt are at new highs.  This has been driven by a surge in government debt.  Remind us again on how we can talk about deleveraging when overall debt levels are at new world records?

Source: Bianco Research

Category: Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “Are U.S. Debt Levels Now Manageable?”

  1. VennData says:

    That’s Keynsian economics, bailing out the debt levels of the private sector, moving them to the public, then we will cut spending and raise taxes ( the wonderful, not scsry at all “fiscal cliff”) and dig ourselves out of the mess the fanatical Bush adminstration put us in.
    Just don’t vote for the fanatics any more.

  2. WFTA says:

    Completely off subject. Sorry. But when a college educated adult being paid millions makes a statement like the one below and is not pilloried by the financial media something is very deeply wrong.

    “This particular synthetic credit portfolio was intended to earn a lot of revenue if there was a crisis. I consider that a hedge,” Dimon said.
    (testimony of Jamie Dimon before Senate Banking Committee)

    It ain’t a hedge. And isn’t a crisis what we’ve been enjoying these last five years?

  3. Woj says:

    An important chart missing from this grouping is one showing the percentage of household debt as a percentage of GDP. Private, namely household, debt has been at the center of the US crisis from the beginning. Although households have been reducing debt over the past few years, the levels remain incredibly high compared to the post-WWII average. High interest costs on this debt compared to growth in income makes further reductions increasingly difficult (http://bit.ly/KjeeaM). I think the US is still several years off from being able to sound the all clear on the debt situation.

  4. northendmatt says:

    1. Govt can’t delever at same time as private sector unless we run a current account surplus.
    2. Logarithmic scale on the total debt, please!

  5. AHodge says:

    agree
    i dont see much deleveraging and the bare minimum from writedowns
    which should normally take place

    while effective interest rates have been falling
    net interest is still 11% of GDI=GDP
    even a modest recovery and little more inflation could double effective interest rates
    eventually as maturities runoff
    makes interest roughly 22% of GDP for starters
    a big interest rate push and the US is completely toast.

    be interesting to see what a 30% of GDP for net interest payments looks like
    good for coupon clippers and pension funds the rest of economy strangled by debt?

  6. Futuredome says:

    The only way you get a “big” interest rate push is if US debtholders give up on the US economy and cash out. In that regard, you could argue that a bigger federal deficit is needed to satisfy the demand and speed up deleveraging.

    That is simply the way the system works. Deleveraging is useless nominally. In real terms, it looks like when total credit hits about 180%, that will be the end of deleveraging.

  7. kurtwestphal says:

    JPM (Dimon) significantly contributes to committee members campaigns; I expect no serious impact and/or consequences of his appearance and basic softball questions.

    This issue shouldn’t be about JPMs bad trade (pseudo trade) and what to call it, rather how to disconnect TBTF banks from a FED, and government loss backstop. if JPM wants to exercise years of poor governance and risk management, so be it, but let them risk the company into oblivion and face the consequences on their own. Not be systemically enabled to socialize the loss.

    Banks have been collecting usurious rates for years, again a congressional achievement. De leveraging could potentially accelerate if interest wasn’t so excessive.

    Congress lacks any measurable courage to clean any of this up..

  8. victor says:

    It would be interesting to see a breakdown of “private credit market debt”. Household debt: Student loans and credit card loans, each $1T are not being wound down while some of the mortgage debt is being written down via foreclosures. Some deleveraging!

  9. Rookie says:

    I worry about the United States. Slicing and dicing all this stuff is nice but the important thing is what can sink the United States. It is simple – the United States’ debt. It is huge and continues to grow very quickly. We can pat ourselves on the back all we want about trimming our personal debt or balancing state budgets, but we are sunk if our country goes bankrupt!

  10. toddtdf says:

    Overall debt is growing less than inflation and less than economic output. Meanwhile North American governments can borrow at long-term negative real interest rates. That’s a big change from a few years ago.

    I think most people are concerned about the overall debt levels, but having said that, I can’t think of a better time for more fiscal stimulus. Long duration unemployment is the biggest threat to debt sustainability. A lot of government deficit spending is on the unemployed. Would be better if that spending was re-directed at job creation.

    If we want fiscal surpluses, the best way to realize that is with economic growth. You can’t shrink the economy (via austerity) and hope that debt/gdp will go down. It rarely does.

  11. [...] “House of Morgan” Nurtured by Crisis-Mystified Senators | Ron Chernow House of Morgan author compares Jamie Dimon’s 6/13 Senate testimony to J.P. Morgan’s in 1933. Says FDIC insurance makes today different, bankers should be more conservative since taxpayers back them. Are U.S. Debt Levels Now Manageable? | Jim Bianco [...]