Chillin' out till it needs to be funded
Fifty years after executives at Bank of America had a clever idea — issue credit cards to ordinary consumers — the leveraging of America may finally be over. The amount owed by consumers, in relation to the entire American economy, has started to fall.
But it is not consumers whose willingness to take on debt was most notable during the half-century. It is the financial sector itself, The New York Times’s Floyd Norris reports. The banks that made the loans proved to be much more willing to borrow than their customers, whether corporate or consumer.
And that debt has not begun to recede, despite Wall Street bankruptcies and widespread efforts by financial firms to reduce their own debts.
At the end of 2008, according to the Federal Reserve Board, total debt in the financial sector came to $17.2 trillion, or 121 percent of the size of the gross domestic product of the United States. That was $1 trillion more than a year earlier, when the total came to 115 percent of G.D.P.
Half a century earlier, the financial sector debt was $21 billion, which came to just 6 percent of G.D.P.
Household debt, by contrast, stood at $13.8 trillion at the end of both 2007 and 2008, allowing the debt as a proportion of G.D.P. to fall to 97 percent from 98 percent.