On Monday I took a lot of debt all lumped together, divided it by some measure of income, and looked at it in terms of good and bad. (Debt going up was bad.) Long story short, we didn't find anything but bad debt.
Today I want to break up the lump and look at some of the major pieces.
I took the two major parts of total credit market debt -- financial and nonfinancial -- and put them on a graph. Then, because everybody gets so worked up about the Federal debt, I took that out of the nonfinancial debt and gave it its own line on the graph. (Note that this is the "debt held by the public" part of the Federal debt, not the "gross" Federal debt. The gross debt includes the borrowing of Social Security funds -- which are not "credit market" funds, evidently.)
Finally, for ha-ha's I added a line to show what used to be called the "Foreign Sectors - Rest of the World" debt. Now it's called "Rest of the World; Credit Market Instruments; Liability, Level". Here's the graph showing all four pieces:
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| Graph #1: Major Shares of US Credit Market Debt Nonfinancial other than Federal (blue) ... Federal Debt (green) Financial Debt (red) ... Foreign Borrowings (orange) Click the Graph for the FRED Source Page |
The rest of non-financial debt (blue) starts out about half of all credit market debt, rises with alacrity to about 70%, then gradually falls to 50%.
Financial debt (red) starts out at about 2% of all credit market debt, and rises for half a century.
Foreign debt (orange) dribbles along just above zero.
This graph shows portions of debt relative to total debt. It doesn't show debt relative to a measure of income. So we can't use it to talk about "good" and "bad" debt -- not if we want to stick to the definitions from Monday's post. Think of this as deep background.
Hey, here's a different look at the data presented in the graph above. Three snapshots 25 years apart. Again, blue is nonfederal nonfinancial debt; green is Federal debt held by the public; red is financial debt; and orange is foreign borrowing:
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| Green = Federal Debt ... Blue = Other Nonfinancial Debt ... Red = Financial Debt 1955 |
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| Green = Federal Debt ... Blue = Other Nonfinancial Debt ... Red = Financial Debt 1980 |
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| Green = Federal Debt ... Blue = Other Nonfinancial Debt ... Red = Financial Debt 2005 |
2 comments:
If I were looking at an individual firm to evaluate its financial health & stability, I'd look at it in terms of debt vs equity financing. What it owes vs what it owns.
If I were reading above charts from the point of view of the private sector in aggregate (whose health and stability I see as the entire point), I'd see the green as what I own and the rest as what I owe. The progression from 1955 to 2005 shows increasing debt-to-equity, leaving open the question as to whether the problem is too much debt, too little equity or both.
gee: "... the private sector in aggregate (whose health and stability I see as the entire point)..."
I think that's exactly right, so I know we're on the same page. The rest of your comment above, is interesting. I recognize the part "I'd see the green as what I own and the rest as what I owe" as something Greg has told me many times in many ways. But it's just not the way I think. Or maybe the word 'equity' gives me trouble. (When I think of equity, I think of home ownership.)
You describe "increasing debt-to-equity" ... For me the progression a variant on my debt-per-dollar graph and it's something I look at all the time. But I just miss the connection that you get. (Dammit!)
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