March 4, 2004, 11:36PM
Total borrowing in U.S. skyrockets
New York Times
The Federal Reserve reported Thursday that the nation's debt, including both household and government borrowing, grew last year at a pace not seen since the late 1980s.
According to the quarterly federal funds report, the total national debt, excluding the obligations of banks and other financial institutions, grew by 8.1 percent last year, its fastest pace since 1988.
Households threw caution to the wind, mortgaging and re-mortgaging their homes and expanding their debt by 10.4 percent, the biggest percentage gain since 1987.
Federal government borrowing expanded by 10.9 percent, the fastest rate since 1992.
Only businesses pulled back. Still hobbled by credit overhangs from the investment boom of the late 1990s, corporate borrowing inched ahead by 3 percent.
Overall, the nation's debt grew by some $1.7 trillion last year to $22.4 trillion, the Fed said. The federal government accounted for about 18 percent of the total, local governments for roughly 7 percent, households for 42 percent and businesses for 33 percent.
Creditors abroad financed about a third of the year's borrowing, equivalent to 5 percent of the nation's total output of products and services.
A deep recession put a sour end to the 1980s credit bender, when huge federal budget deficits fueled double-digit annual growth in the federal debt. But economists are not willing to call how the current borrowing binge might play out.
"There's a time-bomb issue," said Allen Sinai, head of Precision Economics, a consulting firm. "There are potential adverse consequences, but we don't know when."
Even Fed Chairman Alan Greenspan declared himself at a loss to explain how a corrective could be applied to the current financial imbalances.
"Can market forces incrementally defuse a worrisome buildup in a nation's current account deficit and net external debt before a crisis more abruptly does so?" the Fed chairman asked in a speech to the Economic Club of New York on Tuesday.
Debt could hobble the economy. Sinai said household balance sheets seemed sound only because the price of household assets, like homes and stocks, were high and interest rates were low.
But if interest rates were to rise sharply, for example, because businesses started borrowing again or a depreciating dollar primed inflationary pressures, "the picture could turn nasty in a hurry," Sinai said. |
