Debt Data

[drewtam]

Debt Data
Source:
Federal Reserve Board, Flow of Funds
http://www.federalreserve.gov/datadownload/Download.aspx?rel=Z1&series=4ae60d75ab9a4da4e0cf4a6dea9ebb6f&filetype=spreadsheetml&label=include&layout=seriesrow&lastObs=100

All the data plotted is un-adjusted source (not seasonally adjusted, contrary to what is usual in news releases).


Total US debt peaked at ~3.85 debt to GDP ratio in 2008. It began to decline about 6-9 months before the financial system froze and general market panic set in. Before the peak, the total debt was increasing at an exponential rate. Since that peak, the ratio has continued to decline; though the rate of decline has slowed considerably and may be nearing a bottom.


[plot of gdp, debt, and ratio]

The biggest debtors is the banking and financial businesses themselves. They take the most debt to leverage their capital to achieve reasonable returns on assets.
The second biggest debtors are consumers (from credit cards to mortgages).
Third on the list is all business.
Distant fourth and gaining fast is the Federal gov't.
Tied for irrelevancy is combined States's debts and money owed by the rest of the world.



[plot of debt ratio broken out by type]

Early 2000's supported double digit percent annual debt increases from almost every sector of economy.
Consumer debt was the first to begin deflating the economy starting its precipitous decline in summer of 2006.
While consumers were withdrawing for various reasons (but probably dominated by lack of credit worthiness and defaults), business hadn't gotten the siganl and was still ramping up borrowing/spending/investing from its 2002/3 recession.

Both financial and non-financial business see their peak debt growth in late 2007, then an inexorable decline through 2008 and 2009 as they respond to the collapse of demand. In 2nd quarter of 2009 financial business debt growth not only stopped, but has gone negative. Banks and finance companies began shedding debt and leverage. Survivors haven't stopped increasing capitalization ratios; many banks were shuttered, dropping the debt of the sector.

Most importantly, consumers have also never restarted their debt growth, even as real GDP has returned to growth (thus lowering the debt ratio). This continued negative debt rate gives lie to the trumpeted recovery of the housing and consumer markets. But with the debt growth trending from negative (reducing debt) to near 0 rate of change, we may truly be near the bottom. If housing prices are up its likely due to investors buying up rental property (as a non-financial business) and balance returning to number of houses for sale and credit worthy buyers.

Interestingly, the 3rd and 4th largest debtors are driving the financial markets, and the overall economy. Businesses are borrowing/investing. Obviously the Federal gov't is pulling in massive amounts of debt growth, but is slowly starting to trend back to a more balanced budget as tax receipts start to recover and bank failures recede.

State and local gov'ts are fairly conservative and tend to very small debt growth, and was trending to 0 debt growth before the financial crash was self evident. Rest of world debt seems to have wild swings. Both are pretty small players in the debt market and are not shown to improve readability.



[Annualized change in liabilities, unadjusted]


PS I seem to enjoy data crunching. I hope you find it intellectually stimulating and derive some usefulness from the data. If you have trouble reading the plots, I can make them bigger.

[Northwoods]

Been debt free, except mortgage for coming on 7 years now.  Like it that way.

[HankB]

Being debt free feels good, since things are a bit dodgy at work right now.

[drewtam]

I seem to have a knack for starting boring threads. 

[Hutch]

Drewtam, it would be easy to draw the wrong conclusion by looking at the graph of debt to GDP and assume that our debt is declining.  It is most assuredly not, and, when coupled with increases in unfunded future liabilities, beggars the imagination.  It reminds me of politicians who describe decreases in the rate of growth in budgets as "draconian cuts".

[drewtam]

Drewtam, it would be easy to draw the wrong conclusion by looking at the graph of debt to GDP and assume that our debt is declining.  It is most assuredly not, and, when coupled with increases in unfunded future liabilities, beggars the imagination.  It reminds me of politicians who describe decreases in the rate of growth in budgets as "draconian cuts".

You are mistaken. There is no slight of hand here, the 2 biggest debtors, financial business and consumers, have been decreasing their debt both nominally and GDP ratio. Only very recently has consumer debt started a very slight nominal increase, but it is still growing slower than the economy, and at the very least, slower than inflation.


Download the file, here is what the data actually says:

Peak Financial business debt was 4th Quarter 2008 at $17.12 trillion.
Post peak minimum was 4th Quarter 2012 at $13.85 trillion.
A difference of 3.3 trillion dollars. That is a metric Revdisk load of debt reduction. 
The last data point published by the fed res is 4th quarter 2012; financial business is still reducing leverage.

Peak Consumer & Non-profit debt was 1st Quarter 2008 at $13.83 trillion.
Post peak minimum was 3rd Quarter 2012 at $12.76 trillion.
A difference of over a trillion dollars.
The last data point published by the fed res is 4th quarter 2012, where consumer debt took a slight uptick.

My intuition tells me that it is much harder for consumers to shed debt than financial and non-financial businesses. But I have no data to back that up.


I completely agree that the Fed Gov has been dramatically increasing debt since 2008. It is quite evident in the data. But they have traditionally been the 4th largest debtor in our economy after non-finance business; and so the overall economy is usually dominated by those top 3 players.

My main observation based on the data, is that the top 2 players continue to retreat from debt. While the bottom 2 are pretty much the only drivers of the anemic economic growth that we have seen since the crash/ beginning of the depression.

I'll further editorialize and say that I am deeply pessimistic about the rosy expectations of growth from the non-financial business sector, as seen by the record setting DJIA/S&P/NASDAQ. I think a lot of that growth is being supported by unsustainable Federal deficits, and furthermore, Wall Street earnings reports continue to be very mixed on profit, if not a trend down. Both cases should begin to discourage additional debt growth from non-financial business.
The federal reserve is starting to feel inflation pressures and may react by increasing interest rates or winding down the bond buying programs. In either case, such action would also discourage businesses from continuing its debt growth trend.

[Northwoods]

I disagree with your premise that increasing debt is a driver of (or even necessarilly an effect of) an increasing economy.

[drewtam]

I disagree with your premise that increasing debt is a driver of (or even necessarilly an effect of) an increasing economy.

With the many armchair economists on this board, myself included, I'm surprised no one's taken a bite out of this one.

I'll be reserved and say this, it is hypothetically possible to create a capitalist system that uses a minimum amount of debt, but I have never seen such a construct in real life. I think the "social credit" and debt deflation camps have proposed economic models that do this, but neither are mainstream.

My understanding of mainstream economists is that they consider debt to be unimportant to the economy. Looking at the empirical data, fractional reserve system, banking and finance models, I am currently convinced that this cannot possibly be right.

Or think of it in practical terms, for these 3 biggest debtors...
How does a bank get money and capital to turn a profit?
How is house construction, car sales, etc supported?
How does a business get money to expand?

I don't mean these rhetorical questions in the theoretical, "is it possible to do all these things without debt?"
but in the actual practice of all capitalist nations in modern history.

The empirical data clearly shows that debt drives and/or is drive by the economy, for both good and ill. If I understand the data correctly, one can look at all of our major and minor recessions and see the economic performance swings in the debt data.