By: Financial Advisor Tim Hayes - posted in: Economy, Markets, and Interest Rates - Last updated Nov 15, 2019

About Financial Advisor Tim Hayes

Tim Hayes AIF®, CRPS®, AWMA®, CFS®, APMA®

Registered with Cambridge Investment Research, Inc., a broker-dealer with over 3,000 Registered Representatives nationwide. Investment Adviser Representative at Cambridge Investment Research Advisors, Inc., a $94B RIA based in Fairfield, IA. I've held an industry securities registration for 26 years and am subject to SEC and FINRA oversight.

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10 Years After the Financial Crisis, Does the U.S. Still Have a Debt Problem?

by | Last updated Nov 15, 2019

Debt in total in the U.S., government, individual, and corporate is much higher today than it was before the 2008 financial crisis.

Yes. The amount of debt today is higher than it was before the financial crisis. Before the Great Recession, the total debt in the U.S.—that is, government, business, and personal debt combined—was $53 trillion. At the end of 2018, it had increased by 36% to $72 trillion.

Read more: The Bond Market Might Be President Trump’s Toughest Opponent

Debt Problem

There was a period at the bottom of the Great Recession in 2009 in which total debt relative to the size of the economy (gross domestic product, or GDP) was higher than it is today. But that was when the GDP was at its low point.

Read more: Is It a Smart Idea to Reduce Taxes If a Big Buyer of Your Debt Stops Buying?

The critical debt rate is what was before the crisis. That was the level of debt that helped break the economy. And it is the same now as it was then.

Plus, if you add the $4 trillion of debt the Federal Reserve owns—which must be replaced with new public and private debt if the Fed wants to continue reducing its balance sheet—the ratio of debt to the size of the economy today is higher than it was before the financial crisis.

Read More: The Fed Balance Sheet Reduction Schedule

Do these high levels foreshadow another financial crisis? Not necessarily. Today we have more government and corporate debt and less mortgage debt. And governments and corporations might be better able to withstand higher interest rates than homeowners with subprime mortgages could do.

That test is coming. The Federal Reserve has been hiking short-term rates, and last week long-term interest rates finally spiked. Rising rates put pressure on highly indebted individuals, corporations, and, in some cases, governments.

These are the opinions of Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only, and should not be construed or acted upon as individualized investment advice. 

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