Ready, Fire, Aim! - Mihail's Public Blog: A debt bubble?

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Saturday, October 26, 2002

A debt bubble?

According to this earlier Chicago Tribune story about the growing debt and concerns that it is a debt "bubble":

But as Federal Reserve Chairman Alan Greenspan and others point to revived business investment as a key to a sustained recovery, those growing corporate debt levels are receiving increased scrutiny: More money devoted to servicing debt means that much less for investment, and more debt overall means more skittish lenders.

"I've been saying there was a debt bubble for about two years," said Jane D'Arista, director of programs at the Fed-watching Financial Markets Center think tank outside Washington. She said the Fed has made the situation worse by fixating on inflation as debt swelled to unprecedented heights.

...There's no disputing that, in sheer dollar terms, debt has ballooned. Household debt, including mortgages, has more than doubled since 1991, reaching nearly $7.9 trillion at the end of the first quarter, according to the most recent Fed data. Corporate debt has mushroomed almost as fast, topping $4.8 trillion. Add the debt from other businesses and nearly $10 trillion in debt from the financial sector, and the total exceeds $24 trillion.

That, of course, is more than twice the annual gross domestic product of roughly $10.3 trillion, and dwarfs the ever-popular federal debt, which checked in at a paltry $3.4 trillion at the end of the first quarter.

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