12/6/20: American Love Affair with Debt: Part 2: Leverage Risk

I have earlier updated the data on the total real private economic debt in the U.S. as of the end of 1Q 2020 here: https://trueeconomics.blogspot.com/2020/06/12620-american-love-affair-with-debt.html

So, just how much is the U.S. economic growth dependent on debt? And have this dependency ben rising or falling prior to COVID19 pandemic onset? Well, here is your answer:

Using data through 1Q 2020, U.S. dependency on debt to generate economic growth in the private sector shot through the roof (see dotted red line above). In other words, U.S. corporate sector is leveraged to historical highs when the corporate debt levels are set against corporate value added.

All we need next is to see how 2Q 2020 COVID19 pandemic figures stack against this. A junkie hasn't been to a rehab, and the methadone clinic is closed...

12/6/20: American Love Affair With Debt: Pre-COVID Saga

Latest data for debt levels at the U.S. non-financial businesses and households (including non-profits) is out this week. So here are the charts and some stats:

There has been a bit of rush back in 1Q 2020 (the latest data available) to load up on loans by both private households and private businesses. 

• Non-financial business debt rose 7.86% y/y in that quarter, before COVID19 pandemic fully hit the U.S. economy. For comparison, previous quarter, debt rose *just* 4.81% y/y and 8 quarters annual growth rates average through 4Q 2019 was *only* 6.21%. Not only the U.S. businesses levered up over the last two years at a pace faster than nominal GDP growth, but their reckless abandon went into an overdrive in 1Q 2020.
• U.S. households and non-profit organizations serving them were not far behind the U.S. businesses. Debt levels in the U.S. households & NPOs rose 3.75% y/y in 1Q 2020, up on 3.26% y/y growth rate in 4Q 2019 and on 3.32% average growth rate over the two years through 4Q 2020. Which, in part, probably helps explain how on Earth financially-stretched American households managed to buy up a year worth of toilet paper supplies in one week in April.

Thus, overall, real private economic debt in the U.S. has ballooned in 1Q 2020, rising to USD 33.092 trillion. This marked y/y growth rate of 5.80% in 1Q 2020, up on 4.03% growth in 4Q 2019 and on 4.73% average growth over two years through 4Q 2019:

 

And yes, leverage risks in the private sector have increased as the result of these figures. At the end of 1Q 2020:

• U.S. non-financial businesses debts stood at 78.07% of GDP, an all-time high since the post-WW2 data started;
• U.S. households and NPOs debts stood at 75.6% of GDP, marking an official end to the post-Global Financial Crisis 'deleveraging' period that saw debt/GDP ratio declining to the low of 74.2% in 4Q 2019.
• Total non-financial private real economic debt stood at 153.67%, the highest level since 1Q 2011.

15/1/16: Household Debt Sustainability in One Chart?

Here is a neat chart plotting household debt against long term interest rates in an attempt to visualise property prices in affordability / sustainability context:

Source: @resi_analyst

Irish progression is poor by debt measure, and is sustained (barely) by low interest rates, even post-deleveraging.