Debt Song: It’s Not a Pretty Tune

Key Points

  • Total credit market debt is down from its pre-financial crisis high, but still stratospheric.

  • Although household and financial sector leverage has come down significantly post-financial crisis, government and nonfinancial corporate leverage has been skyrocketing.

  • Expected stronger economic growth is a good thing, but it’s also bringing tighter monetary policy, which has implications for servicing the rising burden of debt.

I spend a lot of time on the road speaking to our investors and advisors and one of the common questions I get during the Q&A sessions is, “What keeps you up at night?” Aside from having an 18-year old daughter—and being a chronic insomniac anyway—my reply usually centers around debt and the burden it has and will continue to place on our economy. The broadest measure of debt is “total credit market debt,” which includes every measurable form of debt across the government and private sectors. (What it decidedly does not include is the future debt associated with this country’s unfunded entitlements…but that’s a story for another day.)

Some of the best data gathering on debt is done quarterly by my friends at Ned Davis Research (NDR). By the way, I’ve been an insatiable consumer of NDR’s research since the mid-1980s, when Ned and my first boss, Marty Zweig, often put their considerable talents together with research projects. In addition, I am always grateful to my friends at NDR who often work with us on custom research projects and data gathering.

This report will be chart-heavy (many from NDR) but less wordy; as in many cases, the charts practically speak for themselves. First up, is the aforementioned total credit market debt, which as you can see below, is at a whopping 350% of U.S. gross domestic product (GDP). That’s down from nearly 380% of GDP before the global financial crisis (GFC), but still “comfortably” in the high debt zone. The implications of such a high debt load are notable across the spectrum of economic statistics, as seen in the accompanying table.

Debt Down, But Still in Stratosphere

Source: Charles Schwab, FactSet, Ned Davis Research (NDR), Inc. (Further distribution prohibited without prior permission. Copyright 2018© Ned Davis Research, Inc. All rights reserved.), as of March 31, 2018.