This is good news:
U.S. debt has shrunk to a six-year low relative to the size of the economy as homeowners, cities and companies cut borrowing, undermining rating companies’ downgrading of the nation’s credit rating.
Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.
So how can this be with trillion dollar deficits? Well, the private sector and non-federal public sectors are unravelling a tremendous debt bubble that built up in the last decade. Consumer debt is down by $1.3 trillion. Short term corporate debt is down by 55% as well. This isn’t as good as corporations need to borrow to grow. But for that much debt to be unravelled without a complete economic catastrofuck or massive inflation is remarkable.
It’s also helping with the national debt. Because consumer debt is so far down, the treasury has the loan market pretty much to itself. So all our borrowing is coming at low prices, despite the S&P downgrade.
I expect things to change soon. With debt down to much more manageable levels, people will start borrowing again. And if we can get control of federal finances, that will make borrowing even cheaper for private interests. Four years ago, I said that our economy would not move until we’d unravelled the tremendous debt we’d built up. We’re on our way to doing that, thankfully.