In this post, we break US debt into its main components: government, corporate and household. We compare each to their historical levels to determine whether current leverage levels have previously led to adversity. More importantly, we assess whether current leverage levels for each are sustainable.
The rise in US debt is primarily due to the federal government and corporates. Objectively, it is hard to see the case for either being a worrisome risk at present: their liabilities and interest expenses can be covered many times over by assets and income.
Moreover, households have deleveraged during the current cycle. This is quite unlike other periods of economic expansion. Given the importance of consumer spending to overall economic growth, current consumer debt levels are likely to be more of a tailwind for the economy than an impending risk.
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There is a good chance that you have seen a picture of US debt like this one. It compares total US debt, held by the government, corporations and households, to the US economy. By this view, total US debt is very high by historical standards and has grown too rapidly. Enlarge any chart by clicking on it (chart from the Federal Reserve).