The Q3 US balance sheet is out via the Fed’s Flow of Funds statement and the debt decline continues but modestly because of the growing government debt that is delaying the overall progress. At the household level, household debt (home mortgages + consumer credit) as a % of disposable income fell to 117% from 118% in Q2, 121% at end of ’08 and vs the record high of 125% at the end of ’07. It was last below 100% in ’01 and was at 89% 10 years ago, thus the deleveraging process is and will be a long one at the consumer level but the direction is good. Business borrowing fell to the lowest since Q2 ’08 but federal government debt rose by $371b from Q2. Total domestic debt at all levels was $50.6T, down $200b from Q2 and as a % of GDP it was 355% vs 359% in Q2 and 257% 10 years ago when total debt was $24.6T. Thus, while US debt has doubled over 10 years, GDP is up only 48%. In a nutshell, therein lies our problem.
