It is widely acknowledged that America and Americans have borrowed their way into a recession and carried the world economy down with them. Now, as Floyd Norris points out, though there are indications that the American consumers may have started de-leveraging, the businesses continue to run up debts.
The Federal Reserve Board has released figures showing that the total debt in the financial sector came to $17.2 trillion (or 121%of the GDP), $1 trillion more than a year earlier when it was 115% of GDP. Half a century earlier, the financial sector debt was $21 billion, just 6% of GDP. Household debt stood at $13.8 trillion at the end of both 2007 and 2008, allowing the debt as a proportion of GDP to fall to 97% from 98%.
In contrast, though the government debt has soared in recent years, it has undergone hardly any change over the past half century. The total debt of all governments, from the federal level down to the smallest town, was stable at about 60% in 1958 and 2008. In other words, of every $100 in loans in US in 1958, governments accounted for $44 of the borrowing, whereas at the end of 2008, it accounted for only $17 of each $100.
In a clear testament to the remarkable success of financial engineering, the share of financial sector debt on the books of traditional financial institutions — banks, savings and loans and finance companies - fell from 75% in 1958 to just 18%.