Читать книгу The Case for a Debt Jubilee - Richard Vague - Страница 7

Today, we find ourselves with a similar private sector debt accumulation problem, and the idea of strategic debt amnesty or jubilee is arguably more urgent than ever. We were drowning in debt before the Covid-19 crisis, and now we are deluged by it.

“Total debt,” as it will be used in this book, means the sum of public and private sector debt, and private sector debt is comprised of business and household debt, including student loans, mortgages, auto loans, small business loans, credit card debt, and more. In 1951, total debt stood at 128 percent of US national GDP. By the end of 2019, this figure had doubled to 258 percent (see Chart 1). Government debt has also increased markedly and gets the most attention, but we should be more concerned about the rapid growth in private sector debt. From 1951 to 2019, US government debt grew from 74 percent to 108 percent of GDP, but US private sector debt grew even faster, almost tripling from 54 percent to 150 percent. Private debt is necessary and can boost economic growth, but high debt levels, whether for individuals or businesses or both, burden and stunt this growth.

As both the government and American households and businesses used debt to fight the economic collapse caused by the Covid-19 pandemic, these debt ratios continued to spike. From December 2019 to December 2020, total private debt surged by $2.1 trillion, from 150 to 164 percent of annual GDP, making the climb back from the damage all the more arduous, while government debt grew from 108 to 133 percent.

Private debt has almost always been a larger and more consequential factor than government debt in economic outcomes, if for no other reason than its sheer magnitude. Globally, in countries that together total 90 percent of all GDP, public debt totals roughly $70 trillion, while private sector debt totals $123 trillion. GDP growth in developed countries is also more closely correlated to private sector than public sector debt growth.

Chart 1

Sources – Federal Reserve, BEA, Treasurydirect.gov

Since GDP is essentially a measurement of our national income, the ratio of private debt to GDP is the national equivalent of the “debt-to-income” ratio a lender uses when they evaluate your application for a car loan or a mortgage. The higher the ratio, the heavier your debt burden. Debt growth is generally faster than GDP growth in developed economies, and this state of affairs is referred to as “financialization” or “financial deepening.”

Financialization has been lauded by some economists as the hallmark of a mature economy, but it is, to the contrary, the very thing that eventually overburdens households and businesses with debt and slows an economy. For major countries whose governments have “monetary sovereignty” – that is, countries that control their own monetary system, create their own money, and borrow in their own currency – government debt is far less likely to end with default. That’s because those governments can create money to pay back public debts. But households and businesses have no such luxury, and thus private debt is much more likely to default.

It’s not just a problem in the United States (see Charts 2 through 5). From 1990 to 2019 in China, the private (non-central government) sector debt-to-GDP ratio rocketed from 87 percent to 204 percent of GDP and total debt from 94 percent to 260 percent of GDP. Taking the five largest European countries together – Germany, France, the United Kingdom, Spain, and Italy – private sector debt increased from 80 percent of GDP in 1970 to 149 percent in 2019, while in that same period total debt grew from 108 to 238 percent (though within this, the distribution is tilted to the benefit of Germany because of its huge net export advantage). In Japan, from 1964 to 2019, the total private debt-to-GDP ratio grew from 118 to 163 percent, including a huge private debt growth spike that brought the banking crisis of the 1990s. The country’s total debt in this period grew from 123 to 402 percent of GDP.

Collectively, these countries tell the overall global story, since they constitute 60 percent of world GDP and 75 percent of the world’s debt. The debt problem, especially the private debt subset of that problem, is global but concentrated in the larger, developed countries. Developing countries tend to have lower total debt-to-GDP ratios, but even in

a developing country such as India, the trend is clear. From 1951 to 2019, India’s private sector debt grew from 22 to 87 percent of GDP, and total debt from 47 to 159 percent. (A detailed analysis of these other countries is beyond the scope of this book, which is focused on the United States.)

Chart 2

Sources – BIS, CEIC data. Countries Included – Germany, UK, France, Spain, Italy

Chart 3

Sources – BIS, CEIC data

Chart 4

Sources – BIS, CEIC data

Chart 5

Sources – BIS, CEIC data, Federal Reserve, Treasurydirect.gov. European Countries Included – Germany, UK, France, Italy, Spain

In the United States today, private sector loans are asphyxiating many households and businesses. The debt burden for individuals in almost every age group and for businesses of every size is increasing. In my investigations of household debt, it has not been uncommon to find families with all of the following: mortgage debt as great as or greater than the value of their home; student loans still outstanding for the parents; and large debts tied to some unexpected healthcare expense. A growing number of economists decry our slowing long-term growth rate as “secular stagnation.” They explain it as a structural slowdown from such factors as a chronic lack of demand, without recognizing the rising burden of private sector debt as a basic culprit in that stagnation. Families with high debt are far less able to pay for their own children’s college, build additions to their homes, buy appliances, or start new businesses – the very types of things that power an economy forward. Likewise, small businesses that carry too much debt are far less likely to expand, add product lines, or invest in research and development. This huge debt overhang portends an extended period of stagnant and ever-slower economic growth with falling living standards for millions of debt-burdened households.

Not only is the high burden of private debt a deeply consequential problem in its own right, it has also been an underlying issue in several of our recent, and worst, social and economic problems. Runaway household mortgage debt growth brought the 2008 global crisis. The ensuing slow GDP growth largely resulted from the residual burden of this crisis debt, and some commentators believe it helped kindle the discontent that led to Donald Trump’s election in 2016. Since minority communities have disproportionately felt the private debt burden, it has also exacerbated the racial injustice that has only become more urgent and visible in the 2020s. High debt, along with unemployment and underemployment, has contributed to our opioid crisis. As we will see, it deepens inequality. And this debt will hobble our efforts to move the economy forward from the pandemic.