Home / Debt / The Myth of Debt De-Leveraging
Print Friendly and PDF

The Myth of Debt De-Leveraging

Written by Gary North on February 29, 2012

We keep reading of a great de-leveraging that is taking place. Yet the figures say the opposite. Debt is racing higher.

In the United States, total debt, not counting unfunded liabilities of Social Security and Medicare, is now about $53 trillion. It has risen by $3 trillion since 2008.

Debt owed by private citizens is down a little over $550 billion. These people have abandoned their homes or have declared bankruptcy. But this has been overshadowed by increases in Treasury debt and Federal Reserve debt.

We are told that we face imminent price deflation because of de-leveraging. There is no de-leveraging. There is accelerated leveraging.

We have not had once calendar year of price deflation since 1955. Not one! Yet we are always being told that deflation is just around the corner. I have denied this every year since 1964. But there are still people who believe those always-wrong forecasters who predict price deflation next year.

This assessment is accurate:

When it comes to taking the bitter austerity medicine not all participants are shouldering the burden when it comes to the financial market bailouts. The American worker and family have largely been in a massive round of deleveraging from an overhang of debt. The data shows us this with household market debt falling by $569 billion from October of 2007. However, if we are to look at the total credit market we will see that it has roughly increased by $3 trillion over this period. Where is the money (aka debt) going? It certainly isn’t more debt for your average household. Much of this has gone to bailout large banks and government spending. The issue at hand is too much debt relative to income and production yet we continue with more bailouts like the recent action in Greece for example. The reality with the $53 trillion in total credit market debt outstanding is that it will never be paid back. When we chart the trajectory of this we get a rather sobering picture.

Where is the debt flowing?

The government is largely a proxy for big financial interests. This is how trillions of dollars were inserted into the Fed balance sheet with absolutely no oversight. Since the recession hit households have been deleveraging via foreclosures, bankruptcies, student loan defaults, and auto repossessions. Yet as the household debt sector contracted the total credit market continued growing.

The government, the Federal Reserve, and the financial sector keep running up the bills. This dwarfs the relatively minor contraction of the personal debt markets.

It seems rather odd that the $53 trillion in total debt will never be fully paid off. So then what is the end game? Central banks have a preference of inflation since it gives them more tools to manage the bubble’s pop. Yet winners and losers are being chosen here. The financial sector continues to garner more power at the expense of the working and middle class.

This is not going to change until the Great Default by the U.S. government. There will be no deflation until that event takes place.

Continue Reading on www.mybudget360.com

Print Friendly and PDF

Posting Policy:
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse. Read more.

One thought on “The Myth of Debt De-Leveraging

  1. OBAMA HATER 4 SURE says:

    Shouldn't be to long now until the great default actually happens, Just look at the way and the amount of money OBUMMER is racking up these days and you will see what I am talking about.
    I would guess the great default will occure just after the election on November 6th 2012, then he can claim that the U.S.A. is bankrupt and we need a new currency to start up again from net zero and build, watch out The New World Order is upon you and you didn't even see it comming.

    Wham bam thank you man and its all he wrote.