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La Jornada, Mexico

The 'Grand Debt' of U.S. Families


"The United States owes three and a half times what it produces. … U.S. families are heavily indebted, almost to the same degree as the banks, financial institutions, brokerage firms and investment funds. … No entity on earth owes more, and none has more difficulty repaying its debt - however curious that may seem."


By José Antonio Rojas Nieto


Translated By Halszka Czarnocka


July 24, 2011


Mexico - La Jornada - Original Article (Spanish)

House Speaker John Boehner gives a thumbs up as he passes members of the media, July 30.


FINANCIAL TIMES VIDEO: What a downgrade means for Wall Street, July 27, 00:03:45RealVideo

In the first quarter of 2011, the total debt of our neighbors reached $52.3 trillion (their trillion is equivalent to our billion). In the same period, their gross domestic product was $15 trillion (again, their trillions). Therefore, they owe three and a half times what they produce.


By the way, they have been paying down their debt - a little. But just a little. In 2009, it was almost four times what they produced. What makes up this enormous volume of U.S. debt? Who owes what? Which is the most indebted sector at the moment? Can you guess? No ... it's not the federal government. Who, then? It's the financial sector. It is responsible for 27 percent of the total debt. Also, U.S. families are heavily indebted, almost to the same degree as the banks, financial institutions, brokerage firms and investment funds. How much? Twenty five percent of the total debt. That's right - a quarter of the U.S. debt is owed by U.S. families. Of that quarter, mortgage debt represents the largest part: 75 percent. Accordingly, this represents 19 percent of U.S. national debt. Yes indeed, U.S. families owe $10 trillion on their mortgages. That mortgage debt, incidentally, is roughly equal to the total debt of the federal government. So, surprisingly, the debt federal government debts and the mortgages of U.S. households are of the same order: almost $10 trillion each, $20 trillion altogether.


If one adds to this, on the one hand, household consumer debt - $3 trillion, and on the other, the debt of state and local governments - a bit more than $2 trillion, we have slightly less than half of total U.S. debt. Yes, almost 50 percent of U.S. debt is owed by households and local governments. And since part of U.S. government debt payments are derived from personal income taxes - taxes paid by people who live in those households, if you don't mind the tautology - the heaviest weight of our neighbor's debt and, consequently the servicing of this debt, rests on U.S. families, who have never seen their real income as diminished as it is now. It has never been as bad as today. Thus the severity of the reaction against Obama - with and without good reason - who arrived at the presidency during one of the most dire periods in U.S. economic history. Alright.


Continuing on subject of the debt: the rest, meaning a little more than $27 trillion, is owed by five entities or sectors: 1) financial institutions ($14 trillion, which constitutes the almost 27 percent that I mentioned above); 2) non-financial corporations ($3.7 trillion, equivalent to 14 percent of total U.S. debt); 3) non-corporative industrial, commercial and service entities ($3.5 trillion, or 6.6 percent of the total); 4) agriculture, with a bit less than ˝ a percentage point of the total debt; and 5) the rest, or almost 4 percent, corresponding to $2.2 trillion owed by foreign entities.



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What was happening before, for example, 20 years ago in 1991, before the great United States boom? The first surprise is that the structure or relative share of total debt of the various sectors was very similar to today. Not much has changed. Perhaps the financial sector was responsible for somewhat less of the total debt, some 8 percent points less (19 percent instead of 27 percent).  



Also the foreign entities had somewhat less to do with the total indebtedness (2 percent instead of today's 4 percent). The difference was made up by greater public debt on the part of state and local governments. But something very important should be noted. In 1991, total U.S. debt was equivalent to just 2.5 times of GDP, not 3.5, as it is today. If we go back ten more years, it was even less: in 1981 total U.S. debt represented 1.5 times our neighbor's GDP. This percentage was very stable - at least between 1949 and 1981. But starting in 1981, it began to grow and grow and grow. It is surprising that the U.S. economy and society so quickly became more indebted. There were no ups and downs in this trend. The ratio of total U.S. debt to GDP has been persistently ascending. Since 1981 it has continued to grow, at times very rapidly. Only late in 2008 as a consequence of the crisis, did it began to decline slightly - but only a little. Conclusion: no entity on earth owes more, and none has more difficulty repaying its debt - however curious that may seem. More about this very soon. 





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[Posted by WORLDMEETS.US July 31, 3:59pm]


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