Households Cut Back; Government Debt Grows
Kurt Brouwer September 28th, 2009
During this recession, Americans are paying down their mortgages, paying off car and truck loans and moving back to old fashioned thrift. And, Yet, despite all the cutbacks on the part of Americans, the country’s debt load has gone up due primarily to government borrowing. Yet, even with all the new government debt, the country’s headlong race into indebtedness has slowed considerably:
Source: New York Times
The rate of growth in new national debt, is down to 3.7%, which is low by historical standards. This piece by Floyd Norris from the New York Times gives some detail [emphasis added]:
THE United States government is borrowing money like never before. The national debt rose by more than a third over a one-year period, far more than it ever did at any time since World War II.
…This week, the Federal Reserve published its quarterly report on debt levels in the economy. While Uncle Sam borrowed more, others borrowed less. The accompanying chart shows that total domestic debt — the amounts owed by individuals, governments and businesses — climbed just 3.7 percent from the second quarter of 2008 through the second quarter of this year. That is the smallest increase since the Fed started these calculations in the early 1950s.
Moreover, domestic debt declined in the second quarter, falling 0.3 percent to $50.8 trillion. The figures are not seasonally adjusted, making quarter-to-quarter comparisons risky, but it was the first such decline since the first quarter of 1954, when total debt was less than $500 billion.
…Until this recession, the idea that American individuals would ever cut their overall debt levels seemed as likely as an August snowfall in Miami. But that was before the bottom fell out of the housing market, something that Florida condo developers had considered to be equally unlikely.
Over the year, total household debt fell by 1.7 percent, and mortgage debt — the largest component of household debt — fell a bit more, at a 1.8 percent pace. This is the 10th recession since the Fed began collecting the numbers, but the first in which the amount of home mortgage debt fell. Some of that decline, of course, came from foreclosures that canceled debt and left lenders with big losses…
Without the huge slug of debt put on by the government, our overall indebtedness would be falling. Some economists and pundits think government borrowing is the only thing between us and disaster. That may or may not be, but in my opinion it is disaster deferred not disaster avoided.
Even though households are cutting back, the U.S. Treasury just reached a new — albeit dubious — record:
The U.S. Treasury issued a new record of $7 trillion in bonds for the fiscal year that will end next week:
U.S. issues $7 trillion debt, supply to stabilize (Reuters, September 23, 2009, Burton Frierson)
The U.S. government will have issued $7 trillion in bonds by the time the current fiscal year ends next week, but it expects the debt deluge to stabilize by mid 2010, a Treasury official said on Wednesday.
…However, this expansion may take place in an environment where investors consider leaving the safe-haven Treasury market for riskier assets, and debt issuance is likely to level off mid next year, said Treasury Acting Assistant Secretary for Financial Markets Karthik Ramanathan.
“In fiscal year 2009, which ends next week, Treasury will have issued $7 trillion in gross issuance — that’s in a 12-month period,” Ramanathan told a financial markets conference in New York…
A trillion here and a trillion there. After a while, it adds up. Not all of these bonds were brand new. In fact, most of the bonds issued replaced bonds that were maturing. Nonetheless, the new debt issuance is huge. Reuters continues:
“This issuance was necessary to meet nearly $1.7 trillion in net marketable borrowing needs, nearly $1 trillion more than what we raised last year,” he added.
That’s sizeable. $1.7 trillion in net new borrowing.
Finally, the headline of this piece cracks me up. ‘U.S. issues $7 trillion debt, supply to stabilize.’ Since the Treasury determines what the supply is, I guess that’s like saying, “We’re borrowing scads of money now, but we plan to borrow less in the future.” OK, that’s nice, but we’ll believe it when we see it.
Ordinary Americans have proved they can cut back, but it remains to be seen what happens when the recession ends and the recovery begins. The reverse is true of government borrowing.
- Business , Economy , Money , Personal Finance , debt , deficit , inflation
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