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Public debt passes private debt

The E21 Team notes that public debt has surpassed private debt for the first time in 13 years:

10-4-chart1.png

Households and businesses borrowed in the run-up to the crisis, and then the government massively ramped up its borrowing once the crisis hit and it had to expand. Here's a table with more exact numbers:

10-4-chart2.png

E21 spins this as "the false promises of a debt-fueled growth binge are now apparent to most," while I'd stick with the IMF's study showing that cutting the size of government when interest rates are near zero and private demand has collapsed has a massive contractionary impact on the economy -- which is pretty much what you'd expect. If you don't like the slow pace of debt-fueled growth, you'll really hate the double-dip recession of ill-timed austerity!

But either way, we're seeing private risk become public risk, and we eventually need to get out of that. As this New York Times story makes clear, however, the private sector doesn't want to take on more risk until the economy recovers. Of course, the economy won't recover until the private sector takes on more risk. It's the Catch-22 of recovery.

By Ezra Klein  | October 4, 2010; 4:11 PM ET
 
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In the case of Microsoft’s bond offering, one factor might have been avoiding a big tax bill, said Richard J. Lane, who analyzes Microsoft for Moody’s. If Microsoft had needed cash, it could have pulled some from its operations abroad, but “borrowing new money on the debt markets is now cheaper than bringing its own money back from overseas,” Mr. Lane said.

Who would have guessed?

Posted by: krazen1211 | October 4, 2010 5:32 PM | Report abuse

"But either way, we're seeing private risk become public risk, and we eventually need to get out of that."

And who is going to be left to get us out of that? Why, the industrious grasshoppers who conscientiously managed their fiscal affairs, avoiding irresponsible private risk, only to have public risk thrust upon them by a gangs of thieves in finance and politics.

Posted by: bgmma50 | October 4, 2010 5:54 PM | Report abuse

If the government had to put obligations on the books when they are made, not when they are due, like the private sector has to then government debt passed private debt a long, long time ago.

Posted by: tk221 | October 4, 2010 6:24 PM | Report abuse

But what are the relative assets of the entities under comparison? Any X dollar amount of debt is meaningless if it isn't pinned to the "collateral" backing it.

I'm fairly sure that a large portion of the government's collateral is tied up in "faith", which won't get one far in the corporate world.

Posted by: msoja | October 4, 2010 6:52 PM | Report abuse

ezra, the government ramped up its borrowing prior to the crisis too! and considering that it was supposed to be running a social security surplus, its ramped up borrowing was enormous: i just know the E21 crowd, whoever they may be, were busy dissing bush league economics.

meanwhile, i have no idea what msoja is talking about wrt to "faith:" the corporate world lives on faith. it believes that receivables will be paid and there are very few cases where an unsecured creditor in a bankrupcty walks away with anything.

whereas the us is too big to fail, despite the best efforts of the right wing to bankrupt it.

Posted by: howard16 | October 4, 2010 7:20 PM | Report abuse

So according to the graph, public and private debt are about equal now -- just as they were in 1997. Those of us who were around at the time remember that as a fairly robust economy.

BTW, how much of that government debt was used to fund two useless land wars in Asia?

Posted by: stonedone | October 5, 2010 8:27 AM | Report abuse

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