Saturday, April 4, 2009

Debt laden America

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%.

1 comment:

Anonymous said...

Respected Sir,

I have read a lot on your blogs . I wish there was an article which would detail out the current economic situation that the world is facing . And who indeed has profited from the last 5-8 years of the bubble .

I wonder if the world is really worse off , as we make the situation out to be . Factory floor are still getting more efficient , so is almost the every aspect of the world economy .

The downside , I can figure out is the diversion of the resources of the world economy to the satisfy the unjustifiable and to some extent unsatisfiable excess of the richest .