Tag Archives: Debt-to-GDP ratio

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

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.

Bond Yields For All Eurozone Countries Were The Same Before The Lehman Bankruptcy

This is an interesting chart showing that all countries that adopted the Euro in 1999 paid the same interest rate on their bonds after 1999, the year the Euro was introduced. The spread between the different countries returned again after the Lehman Brothers bankruptcy in 2008.

eurozone countries yield long term difference

At the same time many of these countries had a high government debt-to-GDP ratio at that time. A risk that wasn’t priced in the interest rate. I can’t find a graph of these government debt-to-GDP ratio’s in 1999 sadly but this was the result at the end of the second quarter of 2012.

debt to gdp eurozone graphic

The miss pricing of the interest rate on bonds for some European countries by the capital markets is one of the causes of the Euro crisis where we are in today.