The Federal Reserve credit market debt data (Z1) was released for 2012, and I checked to see how the deleveraging was going. Back in 1952 the total of America’s debts, business and personal, federal, state and local, and financial was the equivalent of 135% of U.S. GDP. Despite the blandishments of the growing credit card industry and the “guns and butter” policies of the Great Society in the 1960s, that figure was just 168% of GDP in 1981, the year Ronald Reagan took over and the great national party began. The torch was passed to a new generation, as the “Greatest Generation” that had faced the depression and World War II was gradually replaced by the richest generations, those born between 1930 and 1955 or so, in control of our institutions. By 2009, as Barack Obama took office, total U.S. credit market debt had soared to 381% of GDP.
All the economic pain of the Great Recession, all the mortgage and credit card defaults, all the bankruptcies, all the diminished lives and expectations, only reduced total U.S. credit market debt to 359% of GDP in 2012, still more than double what it had been back in 1981. At that pace, it will take 38 more years for America’s debts to get back to where they were in 1981. But believe it or not, that’s the good news. If one were to exclude financial debt, the debt financial companies owe each other through instruments such as swaps and derivatives, the deleveraging has not yet begun. Total non-financial debts, public and private, were 253.9% of GDP in 2009 and 253.8% of GDP in 2011. In 2012, debt by this figure rose to 255.7% of GDP, which is perhaps the only reason our so-called economy more or less improved. An economy of people and governments spending money they don’t have, because businesses aren’t paying people as much as they want to sell to them. The spreadsheet and more commentary can be found on “Saying the Unsaid in New York.”