Category Archives: U.S. debt

12/6/20: American Love Affair with Debt: Part 2: Leverage Risk


I have earlier updated the data on the total real private economic debt in the U.S. as of the end of 1Q 2020 here: https://trueeconomics.blogspot.com/2020/06/12620-american-love-affair-with-debt.html

So, just how much is the U.S. economic growth dependent on debt? And have this dependency ben rising or falling prior to COVID19 pandemic onset? Well, here is your answer:


Using data through 1Q 2020, U.S. dependency on debt to generate economic growth in the private sector shot through the roof (see dotted red line above). In other words, U.S. corporate sector is leveraged to historical highs when the corporate debt levels are set against corporate value added.

All we need next is to see how 2Q 2020 COVID19 pandemic figures stack against this. A junkie hasn't been to a rehab, and the methadone clinic is closed...

12/6/20: American Love Affair With Debt: Pre-COVID Saga


Latest data for debt levels at the U.S. non-financial businesses and households (including non-profits) is out this week. So here are the charts and some stats:


There has been a bit of rush back in 1Q 2020 (the latest data available) to load up on loans by both private households and private businesses. 
  • Non-financial business debt rose 7.86% y/y in that quarter, before COVID19 pandemic fully hit the U.S. economy. For comparison, previous quarter, debt rose *just* 4.81% y/y and 8 quarters annual growth rates average through 4Q 2019 was *only* 6.21%. Not only the U.S. businesses levered up over the last two years at a pace faster than nominal GDP growth, but their reckless abandon went into an overdrive in 1Q 2020.
  • U.S. households and non-profit organizations serving them were not far behind the U.S. businesses. Debt levels in the U.S. households & NPOs rose 3.75% y/y in 1Q 2020, up on 3.26% y/y growth rate in 4Q 2019 and on 3.32% average growth rate over the two years through 4Q 2020. Which, in part, probably helps explain how on Earth financially-stretched American households managed to buy up a year worth of toilet paper supplies in one week in April.
Thus, overall, real private economic debt in the U.S. has ballooned in 1Q 2020, rising to USD 33.092 trillion. This marked y/y growth rate of 5.80% in 1Q 2020, up on 4.03% growth in 4Q 2019 and on 4.73% average growth over two years through 4Q 2019:

 
And yes, leverage risks in the private sector have increased as the result of these figures. At the end of 1Q 2020:
  • U.S. non-financial businesses debts stood at 78.07% of GDP, an all-time high since the post-WW2 data started;
  • U.S. households and NPOs debts stood at 75.6% of GDP, marking an official end to the post-Global Financial Crisis 'deleveraging' period that saw debt/GDP ratio declining to the low of 74.2% in 4Q 2019.
  • Total non-financial private real economic debt stood at 153.67%, the highest level since 1Q 2011.

18/2/19: U.S. Treasuries: Not Finding Much Love in Foreign Lands


In recent months, I have been warning about the cliff of new bonds issuance that is coming for the U.S. Treasuries in 2019, pressured by the declining interest in U.S. debt from the rest of the world. December 2018 figures are a further signal reinforcing the importance of this warning (see U.S. yields comparatives here: http://trueeconomics.blogspot.com/2019/02/15219-still-drowning-in-love-for-debt.html).

In December 2018, foreign buyers cut back their purchases of the U.S. Treasuries by the net USD77.35 billion, following a net increase in purchases in November of USD13.2 billion. December net outflow was the largest since January 1978. On a positive note, Chinese holdings of U.S. Treasuries increased in December, after declining for six straight months. China held USD1.123 trillion in U.S. Treasuries in December, up from USD1.121 trillion in November.

Here is the historical chart, including 4Q 2018 estimate:

Not quite an armageddon, but statistically, foreign holdings of the U.S. Treasuries remained basically flat from 1Q 2014. Which would be fine, if (1) U.S. new net issuance was to remain at zero or close to it (which is not the case with accelerating deficits: http://trueeconomics.blogspot.com/2019/02/15219-nothing-to-worry-about-for-those.html), (2) U.S. Fed was not 'normalizing' its asset holdings (which is not the case, as the Fed continues to reduce its balance sheet - see next chart).


Note: January 2019 saw a decline in the benchmark U.S. Treasuries (10 year) yield, compared to 2018 annual yield:

18/2/19: U.S. Treasuries: Not Finding Much Love in Foreign Lands


In recent months, I have been warning about the cliff of new bonds issuance that is coming for the U.S. Treasuries in 2019, pressured by the declining interest in U.S. debt from the rest of the world. December 2018 figures are a further signal reinforcing the importance of this warning (see U.S. yields comparatives here: http://trueeconomics.blogspot.com/2019/02/15219-still-drowning-in-love-for-debt.html).

In December 2018, foreign buyers cut back their purchases of the U.S. Treasuries by the net USD77.35 billion, following a net increase in purchases in November of USD13.2 billion. December net outflow was the largest since January 1978. On a positive note, Chinese holdings of U.S. Treasuries increased in December, after declining for six straight months. China held USD1.123 trillion in U.S. Treasuries in December, up from USD1.121 trillion in November.

Here is the historical chart, including 4Q 2018 estimate:

Not quite an armageddon, but statistically, foreign holdings of the U.S. Treasuries remained basically flat from 1Q 2014. Which would be fine, if (1) U.S. new net issuance was to remain at zero or close to it (which is not the case with accelerating deficits: http://trueeconomics.blogspot.com/2019/02/15219-nothing-to-worry-about-for-those.html), (2) U.S. Fed was not 'normalizing' its asset holdings (which is not the case, as the Fed continues to reduce its balance sheet - see next chart).


Note: January 2019 saw a decline in the benchmark U.S. Treasuries (10 year) yield, compared to 2018 annual yield:

15/2/19: Nothing to Worry About for those Fiscally Conservative Republicans


H/T to @soberlook:

U.S. Federal deficit was up $192 billion y/y in December 2018. Nothing to worry about, as fiscal prudence has been the hallmark of the Republican party policies since... well... since some time back...  That, plus think of what fiscal surplus will be once Mexico pays for the Wall, and Europeans pay for the Nato.

Soldier on, Donald.