Category Archives: Debt

US debt to GDP and household debt service ratio

A few days ago I made a post about European debt to GDP ratio’s and how they did not show any signs of excess. Hereby are the same charts but this time for the USA. The first chart is a long term chart which shows the debt to GDP ratio for US non-financial corporations, the US government and US households from 1975 till 2019. As can be seen households have been deleveraging since the start of the Financial Crisis in 2008 while corporations and the US government have been steadily getting more in to debt.

US debt to GDP ratios for US non-financial corporations, the US government and US households from 1975 till 2019
US debt to GDP ratios for US non-financial corporations, the US government and US households from 1975 till 2019

Thanks to low rates and the above mentioned deleveraging of households debt service ratios for US households are the lowest in 40 years.

US household debt service ratio (Debt payments as % of disposable personal income)
US household debt service ratio (Debt payments as % of disposable personal income)

Via Guide to the Markets – United States

Eurozone debt to GDP and Eurozone debt service ratios

Here is a chart depicting the the debt to GDP ratios for non-financial corporations, governments and households in the Eurozone from 2000 till 2019. The chart shows how Eurozone households have been deleveraging since 2010. European governments and corporations have started deleveraging more recent in 2015.

Eurozone debt to GDP ratios for non-financial corporations, governments and households
Eurozone debt to GDP ratios

Here is another chart showing Eurozone debt service ratios for households and non-financial corporations from 2000 till 2019. These are a GDP-weighted average of France, Germany, Italy and Spain. Helped by low rates these ratios are now as low as in 2000. No sign of excess as in 2008.

Eurozone debt service ratios for households and non-financial corporations
Eurozone GDP-weighted debt service ratios for France, Germany, Italy and Spain

Via Guide to the Markets – Europe

Dutch Government debt payments to GDP from 1950 till 2020 / Rentelasten Nederlandse Staatsschuld van 1950 tot 2020

A chart of the debt payments as a percentage of GDP of the government of the Netherlands from 1950 till 2020.

Een grafiek van de rentelasten als een percentage van het bruto binnenlands product (BBP) die de Nederlandse overheid betaald op de staatsschuld van 1950 tot 2020. Via Twitter

grafiek Rentelasten Nederlandse Staatsschuld 1950 - 2020 als een percentage van het bruto binnenlands product (BBP) bron CPB. Chart Netherlands Dutch Government debt payments to GDP (Gross Domestic Product)

Yield on bonds of European companies with credit rating ‘A’ is almost at 0%

Very interesting chart via Twitter. The current yield on bonds of some European companies who have a credit rating of A is almost at zero percent (0%). Could it go negative?

 Yield on bonds of European companies with credit rating A

Corporate Debt To GDP And Corporate Profits To GDP Are At An All Time High

As I noted in another post back in November American companies have been loading up on debt the last few years. Right now the amount of Corporate debt outstanding is so big it is at an all time high if you compare it to GDP.

Corporate Debt to GDP

Corporate Debt to GDP

This is possible because the yield on corporate bonds has been steadily declining to all time lows the last few years.

Corporate Bond Yields

Corporate Bond Yields

What is staggering is that this has happend at the same time while corporate profits as a percentage of GDP have never been higher.

EDIT (April 3, 2014): Please read this article regarding the relevance of the CP/GDP chart.

Corporate Profits As A Percentage Of GDP

Corporate Profits As A Percentage Of GDP

Meanwhile all this extra money has not been used to massively invest in new products or services. Companies have been laying of a lot of workers the last few years also. This can be seen in this chart below which depicts what percentage of corporate profits has been used to invest.

Net Domestic Investment (Private Business) To Corporate Profits

Net Domestic Investment (Private Business) To Corporate Profits

Instead companies have been using all this new money to buy back their own stock or to pay a dividend to shareholders. Activist shareholders like Carl Icahn have been pushing companies like Apple to give money back to shareholders instead of investing it in new products.

Companies Have Been Loading Up On Debt In The Last Few Years

Although total US credit market debt-to-GDP is trailing down the last few years (as shown in this post) non-financial companies have been loading up with debt. A lot of these companies seem to use the money for share buy back programs. A prime example of this is Apple’s (AAPL) recent bond issue but a company like Home Depot (HD) is also doing it. This generally improves a company’s EPS and justifies a higher stock price.

FRED St Louis fed total credit liabilities non financial companies

Total US Credit Market Debt As A Percentage Of GDP Is Declining

Too much debt was one of the main causes for the credit crisis in 2008. So I have been trying to figure out if the total debt-to-GDP ratio has been declining the last few years.

Total US credit market debt-to-GDP has indeed been declining from 385% in 2008 to 355% in December 2012.

Update (November 2013): Right now the ratio seems to be around 345%

us total credit market debt to gdp long term liabilities

In dollars total credit market debt has still been going higher, mainly fueled by the government spending, while household debt has been declining.

total credit market debt total household debt st louis fed

US Government debt.

US government total debt

We are moving in the right direction. To much household debt is bad for an economy because people who have run up to much debt will stop spending. Their debt needs to go down so they will have more money to spend on goods and services instead of on interest.

This long term chart which also shows total US credit market debt as a percentage of GDP for the great depression shows that we are following the same pattern as in the great depression.

total us credit market debt to GDP long term great depression

We are going to a more sustainable ratio. Only we are going a bit slower than in the ’30’s but that is maybe a good thing if we want to prevent a lot of civil unrest and the rise of fascist political movements as happened in the ’30’s .