Whose Private-Sector Debt Will Implode Next: US, Canada, China, Eurozone, Japan? by Wolf Richter

Who wins the race to insolvency? From Wolf Richter at wolfstreet.com:

Canadians, fasten your seat-belt. Here are the charts.

The Financial Crisis in the US was a consequence of too much debt and too much risk, among numerous other factors, and the whole house of cards came down. Now, after eight years of experimental monetary policies and huge amounts of deficit spending by governments around the globe, public debt has ballooned. Gross national debt in the US just hit $20.5 trillion, or 105% of GDP. But that can’t hold a candle to Japan’s national debt, now at 250% of GDP.

And private-sector debt, which includes household and business debts — how has it fared in the era of easy money?

In the US, total debt to the private non-financial sector has ballooned to $28.5 trillion. That’s up 14% from the $25 trillion at the crazy peak of the Financial Crisis and up 63% from 2004.

In relationship to the economy, private sector debt soared from 147% of GDP in 2004 to 170% of GDP in the first quarter of 2008. Then it all fell apart. Some of this debt blew up and was written off. For a little while consumers and businesses deleveraged just a tiny little bit, before starting to add to their debts once again.

But the economy began growing again too, and private-sector debt as a percent of GDP fell to a low of 148% in Q1 2015. It has since picked up steam, growing once again faster than the economy, and now is at 151.7% of GDP, back where it was in 2005. This chart shows US private sector debt to the non-financial sector, in trillion dollars (blue line, left scale) and as a percent of GDP (red line, right scale):

In the Eurozone, the pattern looks similar before the Financial Crisis, with total debt growing sharply both in euros and as a percent of GDP. But after the Financial Crisis, private-sector debt continued to grow in euro terms. As a percent of GDP, it largely leveled off, and as the economy picked up steam over the past two years, this debt declined to 163% of GDP:

To continue reading: Whose Private-Sector Debt Will Implode Next: US, Canada, China, Eurozone, Japan?

 

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