Tuesday, September 29, 2009

US Debt Levels

US national debt has been rising rapidly. Since September 2007, the National Debt has continued to increase an average of $3.80 billion a day. It now stands at just under $12 trillion. In many respects the steep rise in government borrowing is a cause for major concern. Usually, higher government borrowing leads to:
  • Crowding out of private sector
  • Higher interest rates to attract lenders.
However, in this recession, crowding out is not occurring. As we have mentioned before, government borrowing is offsetting private sector borrowing.

This interesting graph from the New York Times looks at overall debt in the US. In 2007, total US debt (i.e. from both public and private sector) was increasing at 10% a year; in 2009, this has fallen to 3%. This is the smallest increase in total debt levels since the Fed began collecting statistics in the 1950s.

The main reason for this slowdown in overall debt accumulation is the fact that private households and firms have been seeking to pay off debts. It reflects the low confidence and change in attitudes to thrift and spending. This wasn't so much a feature of previous recessions. It reflects how much confidence was effected.

It's a similar situation in the UK where national debt is rising rapidly, but, for the first time on record UK personal debt is falling.

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