Some Progress on Debt, but a Long Ways Yet To Go
Total US debt – both public and private as a percentage of GDP – peaked in 2010 after a 30-year climb. As seen in the chart, this critical ratio is now steadily declining. I have long argued that it was this number – total debt as a percentage of GDP – that was the crucial figure to watch, as opposed to all the attention being focused on the level of Federal debt only.
As a society, we became way over-leveraged, thanks to the below-market costs of our borrowings, courtesy of our “friends” the Chinese and other factors. The debt ratio levels we reached were unsustainable and when the financial crisis hit, this veritable house of cards started to collapse around us.
But thirty years of excess borrowing and spending will not be reversed in such a short time. We have a long road ahead before this ratio declines back into a more “normal” zone. Fortunately this can be accomplished by GDP (economic) growth in addition to an actual decline in indebtedness.
Chart from Ned Davis ResearchTags: National debt