Sunday, 12 October 2008

US debt, GDP and assets

Thanks to a reader for drawing attention to the following highly interesting graph on the relation of US debt to US GDP which appeared on the London Banker blog. It is clearly highly relevant to the discussion of debt-deflation and the present financial crisis which has appeared on Socialist Economic Bulletin.
The only caution that must be introduced in interpreting this graph is that, as Socialist Economic Bulletin has pointed out, the crucial figure for the economy is not that of the total level of debt but the ratio of debts to assets. This graph does not show this directly but illustrates the ratio of debt to GDP - not the ration to assets. Nevertheless the extremely high ratio of debt to GDP indicates clearly that extraordinarily, indeed implausibly, high levels of asset values in relation to GDP would have to exist to sustain this debt level without 'over indebtedness' occurring.
The build up of US debt in the run up to 1929 is clearly shown, as well as the reduction of debt level created by the Great Depression of the 1930s. The much higher ratio of US debt to GDP by 2008, compared to 1929, is similarly evident from this graph.
As the the London Banker is a blog which is not sympathetic to socialist opinion it was not one we were following, and we would like to thank our reader for bringing this information to our attention.

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