Last Thursday the Federal Reserve released its 2021 Z1 data on, among other things, America’s debts. There is some good news. Sort of. For those who are not average workers, not paying rent, not hoping to buy a house, and not hoping to invest their savings for retirement and have it be worth more than what they put in years later when they retire, rather than less. Total U.S. credit market debt, after having soared from 330.3% of total U.S. GDP in 2019 to 374.6% of U.S. GDP in 2020, a shocking increase, then plunged to 361.1% of GDP in 2021. It is still higher by 30.8% compared with 2019, and by 192.6% of GDP compared with 1980, before the “buy now and hope someone else will be stuck paying later” era began. But the 13.5% decrease in debt as a percent of GDP is still the largest since at least 1953.
How was this accomplished? Did Americans, American businesses, and American governments suddenly start reducing their debts by a massive amount? Uh – no. In straight dollars total credit market debt increased 6.1%, financial debt increased 5.8%, non-financial debt increased 6.2%, household/non-profit debt increased 7.3%, corporate debt increased 5.2%, other business debt increased 3.6%, state and local government debt increased 1.9%, and U.S. government debt increased 7.2%. But in straight dollars, nominal GDP increased by 10.1%, even more, in part due to an expected snap back from COVID-19 shutdowns, but also in part due to soaring inflation. The Economist magazine said years (decades?) ago that Generation Greed had run up so much debt that the choice was to inflate it away, default it away, or face stagnation for decades as it is paid back. That was back when total U.S. debts were far lower than today.
No one is prepared to admit that today the goal is inflate away debts (and the buying power of wages and ordinary people’s savings). Then again, would anyone have predicted 10 years ago, or 20 years ago, or 40 years ago that the Federal Funds rate (controlled by the Federal Reserve) would be at 0.08% at a time when inflation has soared to its highest level since 1982?Continue reading