America is sinking deeper and deeper into a debt crisis, right?
Believe it or not this common wisdom is flat out wrong.
America’s total debt to GDP ratio has decreased 16% since 2008, leading the developed world in deleveraging, according to a new McKinsey report. Total debt, including all loans and fixed-income securities of households, corporations, financial institutions and government, is down even if government debt is up.
“American banks, firms, and households have been chipping away at their debts, more than offsetting Washington’s double-digit deficits,” writes the Telegraph’s Ambrose Evans-Pritchard.
The United States is the closest of all developed countries to moving into the growth phase of deleveraging, according to McKinsey. South korea and Australia were the only other countries to reduce their debt-to-GDP ratio.
Relative strength, however, does not mean that America has dodged the crisis. Mike Shedlock takes issue with Evans-Pritchard:
The US has not started government debt deleveraging and until that is nearly finished there will not be light at the end of the tunnel, let alone the end of the crisis. Optimistically, the best one can possibly assert is one can possibly see light at the end of the “consumer tunnel”. The government tunnel immediately follows.
Here’s McKinsey’s chart:
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