Debt, Debt, and More Debt
Here’s the headline: US Household Debt Hits Record $13.5 Trillion As Delinquencies Hit 6 Year High.
A New York Fed report says that “that total household debt rose by $219 billion to reach $13.51 trillion in the third quarter of 2018—an increase of 1.6 percent, up from a rise of 0.6 percent in the second quarter. Balances climbed 1.6 percent on mortgages, 2.2 percent on auto loans, 1.8 percent on credit cards, and 2.6 percent on student loans this past quarter.”
“It was the 17th consecutive quarter with an increase and the total is now $837 billion higher than the previous peak of $12.68 trillion in the third quarter of 2008. Furthermore, overall household debt is now 21.2% above the post-financial-crisis trough reached during the second quarter of 2013.”
Okay. Let me cut through all this. Total world debt is now approaching $250 trillion dollars. Government debt. Corporate debt. Consumer debt.
That a quarter quadrillion dollars!
And debt is climbing faster than productivity.
It’s one thing if debt is productive. Say someone borrows money to buy some equipment or capital goods that allow him to become still more productive. A farmer buys a tractor and cultivates more land. A shoemaker in the third world borrows for a machine that enables him to make more shoes than he could stitching them by hand.
But its something else again if the money is not used productively. Then the debt increases while the ability to service that debt does not.
That’s what happens when consumers borrow for consumption goods or fancy vacations. It’s what happens when governments borrow to buy votes with giveaway programs.
And that’s the situation today. Global debt is growing faster than productivity, faster than GDP.
As economist say, the marginal utility of debt is down. A dollar of debt is not producing a dollar of GDP.