The Federal Reserve started overall US debt back in the early 1950s. They were looking to monitor the overall growth in the amount of borrowing of businesses, governments, and households. When you live in an economy where moderate inflation is to be expected (such as ours) then you would expect that there would be growth in borrowing every year. Sure enough, this is the case.
Since the 50s the annual rate has seen extreme growth and moderate growth, but growth all the same. Sometimes it’s consumers that keep the number up, sometimes it’s businesses, and sometimes it’s the government. Thanks to this recession and our stimulus packages, it’s no surprise that we’ve seen a huge spike in the amount of government borrowing. But what may be a surprise is despite all that government borrowing, total borrowing by businesses, households, and governments is at its slowest growth rate since the Fed started keeping track!
What does that mean? Well nothing surprising. This would be the worst recession since the Fed starting tracking this and so if there ever was a time to break new records in economic indicators, it’s now. So in a recession none of us can borrow, and so the government borrows to pick up the slack. Like I said, no surprise there.
But I do have another good surprise for you. If you just look at household borrowing (that’s me and you), for the first time ever we’ve actually achieved contraction in our total borrowing thanks to a negative growth rate. Surprising as it might be, don’t go all “personal finance hippy” on me and think this is good. Part of what contributes to this is people walking out on their homes.
Though we may want to decrease our overall levels of debt for personal finance reasons, from an economic standpoint an average annual growth rate close to inflation should be round about appropriate.
The main takeway from this post should be the huge increase in borrowing by the government. You already knew this was the case but the accompanying chart to this NY Times article on this puts all these numbers into really good context. I wouldn’t waste your time reading the article, it’s the chart you want.
 By The Weakonomist |
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Hm, it does seem like a good thing that the household rate of debt has slowed. But as you said, there’s more to it. If people are decreasing their debt by walking out on their homes, that opens up other problems. I’ve been hearing a lot lately about how Japanese households save too much of their incomes (which is a problem) – that sounds like another example of what you said about some borrowing being a good thing. -Mike