Advocates of spending cuts frequently argue that in order to ensure long-term economic health, the US needs to “take some pain” right now and reap the benefits later on. Partly this is due to the idea that too much debt acts as a gigantic weight on the economy going forward. Part of this thinking is just due to a general moral view that suffering is a good thing that will be benefit us in the long run.But here’s the thing. The US already has taken the pain.
Yesterday, Bloomberg noted that on a debt-to-GDP basis, America’s debt has fallen to a 6-year low:
Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.
Now, there’s a lot of handwringing about debt, but it’s usually all focused on Federal government debt: AKA The National Debt.
But The National Debt is just one slice of the total debt pie, and when you start looking at all the other sources of debt, you can see that there’s been quite a bit of shrinkage in recent years.
For example, here’s Household Debt as a share of GDP, which as you can see has fallen to levels not seen since the early part of the century.
And just in case you didn’t realise, here’s the actual dollar amount of household debt, which stood at nearly $13 trillion as of last quarter… not that much lower than the “National Debt” owed by Washington DC.
So the US is cutting its debt, and furthermore, there’s no question that we’re taking the pain.
Want proof? Just look at the unemployment rate. How much more pain are people supposed to take.
The bottom line is that everything people wanted to see happen has happened.
The housing bubble was pricked and collapsed.
Total debt for the country has come down.
The US has experienced a massive amount of economic pain.
Now, time to grow!
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