America has become more a debt 'junkie' - - than ever before
with total debt of $34 trillion, or $119,442 per man, woman and child.

59% ($20 trillion) of all debt was created since 1990,
a decade primarily driven by debt instead of by productive activity.

BIG PICTURE - $34 TRILLION of DEBT in America, and rising rapidly
The economy is 2-3 times more debt-dependent - -
with $19 Trillion DEBT EXCESS compared to prior debt ratios

Here's one graphic of many shown in the main Total Debt Report, linked below.

This is A SCARY CHART - showing 4 decade trends of total debt in America (the red line, reaching $34 trillion) vs. growth of the economy as measured by national income (blue line). (adjusted for inflation). Which line goes up faster, the red debt line or the blue national income line? Answer: the debt line. And, that debt line is going up faster and faster than national income! Right?

(maybe, like this chart, your own personal or business debt is also going up faster than your own income - - possible?)

As mentioned, debt is here defined as all U.S. debt (sum debt of federal and state & local governments, international, and private debt, incl. households, business and financial sector debts, and federal debt to trust funds).

The chart shows in the period 1957 to mid 1970s total debt (red line on chart) was increasing close to the growth rate of national income (blue line on chart), despite paying war debt for WW II, Korea and Vietnam.

But, in the last 20 years total debt ratios have zoomed up, up and away - - growing much faster than national income. It has now reached $34 Trillion ($26 trillion private household/business/financial sector debt PLUS $8 trillion federal & state/local government debt). Here's some highlights:

• in the 1980s real debt increased $9.5 trillion while national income increased $2.4 trillion - - or, 2.1 times more debt  needed per dollar of added national income.
• in the 1990s real total debt increased $15.4 trillion while national income increased $3 trillion - - or, 5.1 times more dollars of debt per dollar of national income, which was 143% more debt intense than the prior decade.
• last year it took 8.2 times more debt dollars to produce a dollar of national income. (4 times higher debt intensity than during the 1980s).
• in the 1990s, 70% of today's domestic financial sector debt was created as it increased 3.5 times faster than growth of the economy; household and business debt increased 50% faster. During the same period the federal government siphoned off $1.7 trillion of trust fund surpluses, creating new un-funded IOUs (the total IOUs now stand at $2.6 Trillion, with nothing budgeted to pay-off).
• in the past year the debt record was even more scary: household debt increased 4 times faster than the economy - - and the federal government's bite out of trust funds set another record high.
• last year's total debt of $34 Trillion was 8 times higher than the $4 Trillion debt in 1957 (both measured in inflation-adjusted 2002 dollars).
• last year's total debt per person was $119,442; this compares to $25,392 in 1957 (both measured in inflation-adjusted 2002 dollars). That's a debt excess of $94,000 per man, woman and child.
• even students are learning how to go into debt up to their necks. The federal General Accounting Office, according to AP's Martha Irvin in January 2002, says college students are graduating with an average of $19,400 in student loans. Additionally, average student credit card debt rose 46% from 1998 to 2000, according to the student loan agency Nellie Mae. Meanwhile, universities promote credit cards issued by agencies who kick-back to them.
• since 1990 it is clear the economy was 'driven' almost entirely by the biggest injection of new debt in history, which produced a much diminished lower return in national income per dollar. Just as one hooked on drugs needs ever increasing amounts of drugs to 'survive', it appears America needs ever increasing amounts of new debt to eke out diminishing amounts of growth - - even with 2 wage earners per family.
• America's total private and government debt is at least 100% higher compared to debt ratios of the recent past.
• AND - America's debt position is such that foreign interests now own more and more of America - - about "$8 trillion of U.S. financial assets, including 13% of all stocks and 24% of corporate bonds", according to Bridgewater Associates. According to the Federal Government Debt Report, foreign interests also own 43% of U.S. government Treasury bonds & notes and 14% of U.S. government agency debt (such as household mortgages financed by Fannie Mae) up from 5% in 1995. The largest supplier of mortgage funds is Fannie Mae which borrows the money on the open market - - and,. according to Bloomberg Sept. 2002, "about a third of the Fannie Mae's benchmark debt is sold outside the U.S." Additionally, foreign interests own real estate and factories. All caused by America's massive trade deficits.
• We should not be mad at foreign interests. We are the ones consuming beyond our own production and savings by borrowing from others, creating unprecedented debts and trade deficits PLUS excessive government spending. Where America's debt used to be owed domestically, increasingly huge portions are now owed to foreign interests. America, therefore, is less and less independently in control of its economy.

Debt in the past decade increased faster than ever in relation to national income, and debt intensity last year increased even faster!

While facing this accelerating internal debt challenge:

• America, already the world's largest international debtor with $2.6 trillion in cumulative deficits, explodes international trade deficits to new records as it depends more and more on the production and savings of others than on itself (see International Trade Report); and,
• with the highest percentage of taxation in peacetime history; and,
• with citizens carrying on their backs more state & local government employees because the number again increased faster than population growth; and,
• personal savings plunged to record lows; and,
• whereas in previous times one bread winner per family was sufficient to provide for the family, build savings and reduce get-started debt loads - - the family now needs the 2nd bread winner plus more debt with less savings and less time for the children - - to do the same.
• and - in previous times students graduated from college debt-free to themselves and their parents, because many worked their way via part-time jobs while minimizing consumptive spending. No longer.
• More families than ever before, with every possible adult in the work force, try to make-up the mounting pressure by turning to more debt with less savings - - while more business debt is accumulated despite paying out fewer dividends to shareholders.

The U.S. is more debt-dependent than ever.
Not a nice bequest to our young generation.

© 2003 Michael W. Hodges
Financial Sense Archives for Mr. Hodges

 Web note: The above editorial is a recent summary of an updated chapter from Michael Hodges series, Grandfather Economic Report. Read the full article: Total Debt Report

Michael W. Hodges
Grandfather Economic Report
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