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notorious
06-08-2012, 02:06 PM
http://finance.yahoo.com/news/u-debt-load-falling-fastest-040045522.html


U.S. debt load falling at fastest pace since 1950s

By Rex Nutting | MarketWatch – 16 hours ago



WASHINGTON (MarketWatch) — Everyone knows America has too much debt. What they don’t know is that things are getting better, not worse.

Little by little, our economy is reducing its debt burden, slowly repairing the damage caused by 10, 20 or 30 years of excess.

If you want to know why economic growth has been so tepid, here’s your answer. Four years after the storm hit, the economy is still deleveraging. And it’s very hard for any economy to grow when everyone is focused on increasing their savings.

Total domestic — public and private — debt as a share of the economy has declined for 12 quarters in a row after surging over the previous decade.
The rapid rise in federal debt over the past four years has distracted us from the big picture. The level of public debt is indeed worrisome, but it’s not as big a worry as the economy’s total level of debt — public and private.

Although we have a whole cottage industry devoted to warning us about the dangers of too much public debt, we don’t have any comparable Cassandras telling us about the dangers of too much private debt. Yet the history of the past 30 years (or 300) clearly shows that too much debt, of whatever variety, can pose a systemic risk to the national and global economies.

As much as we hear politicians, pundits, tea-party patriots and the Congressional Budget Office obsessing about government debt, it was excessive private debt — not public debt — that caused the 2008 financial meltdown. And it was private debt — some of it since transferred to the public — that lies behind the current European debt crisis. (Greece is unique in having a public sector that ran up spending while its private sector is rather conservative.)

As the political rhetoric about the federal deficit has heated up, we’ve lost sight of the progress that’s been made in bringing total debt back under control. The U.S. is actually doing much better than you’d think if you just listened to the conventional fears about how we’re rushing headlong into a debt Armageddon.

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%.

And it wasn’t just the U.S., other advanced economies were adding on to their debt loads as well, with most of the debt taken out by the private sector.

Debt was growing at an unsustainable pace, but it was fueling the U.S. and global economies.

Economists who have studied the impact of indebtedness have found that low levels of debt are essential to growth, but that high levels of total outstanding debt can hurt an economy. Beyond a tipping point, adding on more debt will reduce growth over the long run, even if it inflates a bubble in the short run.

“At low levels, debt is good. It is a source of economic growth and stability,” concluded Stephen Cecchetti, M.S. Mohanty and Fabrizio Zampolli, economists for the Bank of International Settlements, in a paper presented at the Federal Reserve’s Jackson Hole conference last August. “Beyond a certain point, debt becomes dangerous and excessive,” and can lead to increased volatility, financial fragility and slower growth. It can even bring down the real economy with it, as we have seen. Read the BIS paper, “The Real Effects of Debt.”

Cecchetti and his co-authors found that growth can be impaired once nonfinancial corporate debt hits about 90% of GDP, or when household debts hit 85% of GDP, or when public debts hit about 85%.

In the U.S., household debt has now fallen to 84% of GDP from a peak of 98%. Nonfinancial corporate debt has fallen to 77% from a peak of 83%. Financial sector debt has plunged from 123% of GDP to 89%. Public debt has risen to 89% from 56%.

The deleveraging process in the private sector still has a ways to run, not based on some economists’ rule of thumb, but based on what real people are actually doing. Banks and households are still slashing their debt, while nonfinancial companies are beginning to borrow again, but only a little, according to the latest data from the Federal Reserve’s flow of funds report. Take a look at the flow of funds.

According to a study by McKinsey published earlier this year, U.S. households may have two more years of deleveraging left before their debts are sustainable again.

If McKinsey is right, the U.S. economy may have to endure a couple more years of slow growth

Donger
06-08-2012, 02:13 PM
So basically, citizens and private businesses are becoming much more careful, but our government has and is spending like a drunken sailor. Peachy.

Iz Zat Chew
06-08-2012, 02:14 PM
So now the problem is that people are saving their money for retirement? By the sounds of things there won't be any Social Security, or whatever they are calling it now - Entitlement.

Seems the only growth we've really had is negative growth so I do not believe McKinsey is right.

FD
06-08-2012, 02:18 PM
Household deleveraging has been a painful process over the past few years, and will probably continue for 1 or two more, but the upside is that compared to most countries we have done a much more successful job. Surprisingly successful, really.

Iz Zat Chew
06-08-2012, 02:24 PM
Household deleveraging has been a painful process over the past few years, and will probably continue for 1 or two more, but the upside is that compared to most countries we have done a much more successful job. Surprisingly successful, really.

Tell me something, if we are being so successful why is the national debt growing more every day? I heard Obama hammering Bush just before the '08 election about being $9 Trillion in debt. That was after 8 years, some wars and some bailouts. NOW, 3+ years later we are sitting near $16 Trillion and nearing the debt limit again with talks of needing to extend the debt yet again.

Private citizens may be successful because they are putting money away for the day that the gov. defaults. I would be exceptionally happy if we do not default, but that train is speeding down the tracks and neither Obama can stop it (even if he were so inclined) and Romney cannot stop it, I doubt that he will even be able to slow it down. What nobody seems to be aware of is that the tracks end just ahead.

FD
06-08-2012, 02:29 PM
Tell me something, if we are being so successful why is the national debt growing more every day? I heard Obama hammering Bush just before the '08 election about being $9 Trillion in debt. That was after 8 years, some wars and some bailouts. NOW, 3+ years later we are sitting near $16 Trillion and nearing the debt limit again with talks of needing to extend the debt yet again.

Private citizens may be successful because they are putting money away for the day that the gov. defaults. I would be exceptionally happy if we do not default, but that train is speeding down the tracks and neither Obama can stop it (even if he were so inclined) and Romney cannot stop it, I doubt that he will even be able to slow it down. What nobody seems to be aware of is that the tracks end just ahead.

The "national debt" is public debt. Total U.S. debt has been falling over the past few years as households and businesses deleverage. The Federal govt filled a portion of the gap and kept demand from completely collapsing but far from the whole thing.

http://graphics8.nytimes.com/images/2012/01/22/opinion/012212krugman1/012212krugman1-blog480.jpg

notorious
06-08-2012, 03:44 PM
Dave Ramsey approves.

Amnorix
06-08-2012, 04:38 PM
Private citizens may be successful because they are putting money away for the day that the gov. defaults. I would be exceptionally happy if we do not default, but that train is speeding down the tracks and neither Obama can stop it (even if he were so inclined) and Romney cannot stop it, I doubt that he will even be able to slow it down. What nobody seems to be aware of is that the tracks end just ahead.


You're overstating the emergency. It's not an immediate emergency, it's a looming emergency.

Iz Zat Chew
06-08-2012, 09:07 PM
You're overstating the emergency. It's not an immediate emergency, it's a looming emergency.

I'd say the train hits the end of the tracks within the next 4 years.

Iz Zat Chew
06-08-2012, 09:13 PM
The "national debt" is public debt. Total U.S. debt has been falling over the past few years as households and businesses deleverage. The Federal govt filled a portion of the gap and kept demand from completely collapsing but far from the whole thing.



The money the government borrows because the budget (when the democratic gets around to making one) spends more than the government takes in. At the end of the Bush 8 years we were tagged at $9 Trillion dollars of money spent that nobody had. NOW, inside of 4 years the Obama administration has managed to take that deficit to $16 Trillion. Do the math, there is no was the debt is decreasing. national debt is public debt? I'm not sure how anyone could come up with a lame name and excuse as such, but you can piss down someone's neck and tell them it's raining but buddy, it ain't rain. This country owes $16 Trillion dollars, that is NOT shrinking but growing and no kind of double speak can make that piece of shit smell like a rose.

Stewie
06-09-2012, 04:27 PM
Invest your hard earned cash on this dumbassery. Facebook to $550... and that's the low target.

scho63
06-10-2012, 04:04 AM
So basically, citizens and private businesses are becoming much more careful, but our government has and is spending like a drunken sailor. Peachy.

:thumb:

And now this generation of citizens in the US, who realize the importance of savings just like their parents/grandparents who went through the pain of the depression, will be voting out all the wild spenders and union backed pigs. This is why Wisconsin people beat back the recall and why states like CA, IL, MI, NJ and many other Blue states that have enormous budget deficits are changing the way they think and vote.

This is very good for the US

2bikemike
06-10-2012, 09:47 PM
I wonder what the affect of all the forclosures and short sales have had on this shrinking personal debt? Wouldn't that be a lot of debt taken off the books?