Too much debt?

Students of financial and economic crisis, and authors of the book Manias, Panics and Crashes, Kindleberger and Aliber, point to cross-border flows of investment money, particularly debt, as a cause of booms and busts.  Foreign lenders in particular can take fright and turn off the tap.  They are inclined to do that if they think the borrowers are already over-indebted.

So an interesting question to ask is whether America is in hock to foreigners?  To help answer, I’ll first show the overall level of debt owned by the federal government. This was merely $6,000bn in 2000. It rose to $9,000bn on the eve of the 2008 crisis, but the rate of obligations accumulated rapidly in the Great Recession to over $20,000bn. Now it is $21,000bn

The overall government (federal) debt, 1980-2018

As a percentage of GDP, federal debt has leapt to over 100%, from 50% – 60% in the 1990s and 2000s, and under 40% in the 1970s.

Gross Federal Debt as a Percent of Gross Domestic Product, 1980-2018

This level of debt relative to GDP can be coped with so long as the economy does not deteriorate.  But notice how much the government had to respond after the 2008………………..

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