As many people know, the federal deficit shrank considerably in 2021. What may not be understood is just how aggressive that improvement was. In dollar terms, the decline of the deficit in 2021 was the second-most in any year in American history (just behind 2013). And this has resulted in a pretty substantial decline in federal debt as a share of GDP. Back in mid-2020, the amount of federal debt was about 136% the size of our GDP, whereas now it's down to around 125%.
That part of the story has been widely discussed. But what you hear less about is the decline in private debt. Household debt is about 80% of GDP right now, down from around 101% at the end of the Bush years. These days, household debt eats up about 9.3% of disposable personal income, versus about 13.2% at the end of the Bush years.
That's not just because the Bush years were catastrophic for American households (though they were). It's that there's been a massive deleveraging even relative to pre-Bush years. During the whole period from 1980 through 2011, the lowest the debt burden ever went for households was 10.25% of disposable income, versus 9.34% today.
Given the extreme media prejudice in favor of negativity, I think it's worth taking a step back to look at the areas where things are improving, because the media won't mention them. It's probably been a half century, at least, since debt was eating up people's budgets as little as it has been in the last few years.
https://fred.stlouisfed.org/series/TDSP
Ironically, this may actually be playing into one of the current problems we're facing: high inflation.
For most products, people have flexibility to substitute cheaper options in the face of higher prices: like if meat prices are up, you can eat less meat, and if gas prices are up, you can car-pool, walk, bike, take public transit, drive slower, downsize your vehicle, etc. And those things, in turn, cut demand for the high-priced goods, lowering inflation. But that relies on price sensitivity.
Are you distressed enough that when ground beef rises to $4.80/lbs, you are willing to switch to chicken at $1.85/lbs, or beans at $0.80/lbs? If you're price insensitive, you'll just go on buying what you were buying before and griping about it, rather than making such moves. And if you're feeling less pressed by household debt than at any point in decades, it makes sense that your reaction to price increases would be more likely to consist of impotent complaining, rather than any moves that would put downward pressure on prices. Right now we have a nation of households that have less of their disposable income going to debt than at any point in maybe half a century, so it makes sense few are making the economizing moves that would lower demand for the higher-priced goods.
That part of the story has been widely discussed. But what you hear less about is the decline in private debt. Household debt is about 80% of GDP right now, down from around 101% at the end of the Bush years. These days, household debt eats up about 9.3% of disposable personal income, versus about 13.2% at the end of the Bush years.
That's not just because the Bush years were catastrophic for American households (though they were). It's that there's been a massive deleveraging even relative to pre-Bush years. During the whole period from 1980 through 2011, the lowest the debt burden ever went for households was 10.25% of disposable income, versus 9.34% today.
Given the extreme media prejudice in favor of negativity, I think it's worth taking a step back to look at the areas where things are improving, because the media won't mention them. It's probably been a half century, at least, since debt was eating up people's budgets as little as it has been in the last few years.
https://fred.stlouisfed.org/series/TDSP
Ironically, this may actually be playing into one of the current problems we're facing: high inflation.
For most products, people have flexibility to substitute cheaper options in the face of higher prices: like if meat prices are up, you can eat less meat, and if gas prices are up, you can car-pool, walk, bike, take public transit, drive slower, downsize your vehicle, etc. And those things, in turn, cut demand for the high-priced goods, lowering inflation. But that relies on price sensitivity.
Are you distressed enough that when ground beef rises to $4.80/lbs, you are willing to switch to chicken at $1.85/lbs, or beans at $0.80/lbs? If you're price insensitive, you'll just go on buying what you were buying before and griping about it, rather than making such moves. And if you're feeling less pressed by household debt than at any point in decades, it makes sense that your reaction to price increases would be more likely to consist of impotent complaining, rather than any moves that would put downward pressure on prices. Right now we have a nation of households that have less of their disposable income going to debt than at any point in maybe half a century, so it makes sense few are making the economizing moves that would lower demand for the higher-priced goods.
