MrB, fascinating war story! Meanwhile nobody can find anything wrong
with the economy...(from WSJ)
July 28, 1997
The Outlook
WASHINGTON
This is one of those rare moments when economists look
for something, anything, that looks like an imbalance in
the U.S. economy. It is getting difficult to find one.
The debt bomb, in its various manifestations, has long
been the specter haunting the U.S. economy. The
immense buildup of U.S. government debt, standing at
nearly $4 trillion, used to be the main bogeyman, but
today the budget deficit is shrinking faster than politicians
can claim credit for it all. At various times, business has
gone on a debt spree. Some will remember the bond
boom of 1980s as the decade of junk. In the 1990s, the
worry has been the U.S. consumer, maxxing out on
home-equity loans and credit cards.
Today, though, the American debt situation looks well
under control, and looking ahead, there is little reason to
expect a change. Even the consumer problems look
containable. Yes, debt levels remain high and
delinquency rates are troublesome. But the past few
months have brought some good news about the
problems of deadbeat and delinquent borrowers.
As Federal Reserve Chairman Alan Greenspan pointed
to these problems in his testimony before Congress last
week, he also noted that banks have tightened their
credit guidelines, household balance sheets are
improving, mortgage delinquencies are at very low levels
and consumers are adding debt at a slower pace.
Growth in household debt has fallen to slightly above
6% this year, down from more than 8% in 1996.
To most economists, it means that the U.S.
consumer isn't going to spoil the party and throw
the U.S. expansion into the tank anytime soon.
But the consumer-debt situation is one part of a larger
U.S. debt picture. It doesn't get much attention these
days, but it should, in part because it suggests just how
well-balanced the economy is at the moment.
Buried in Mr. Greenspan's full testimony last week were
his comments on what is called aggregate-credit growth.
This is the sum of government, business and consumer
borrowing. The total outstanding is about $15 trillion,
broken down roughly into one-third government debt,
one-third business debt and one-third consumer debt.
Good news here. Credit growth has been slow and
stable, a sharp change from the 1980s. Today, the
annual rate of total debt growth in the U.S. economy is
about 5%. That's about the same rate as economic
growth, unadjusted for inflation. Moreover, in his
testimony last week, Mr. Greenspan indicated that in
1998, credit growth should remain around the middle of
the Fed's target range of 3% to 7%.
"It's part of this wonderful economy we're in," says W.
Van Bussmann, chief economist at Chrysler Corp. "You
look for imbalances and you can't find them. It's
unbelievable."
In short, the deleveraging of the U.S. economy
continues. After rising at double-digit levels through the
1980s, credit growth has really come back to earth in
the 1990s. Most of the change has been by government,
spending less in the wake of the Cold War, and taking in
more tax receipts both at the federal level and in the
states. Then there is business, where balance sheets are
generally in good shape. It is the consumer who has
been the worry. But in the larger scheme of things, even
the big run-up in consumer debt doesn't really alter the
picture of slow, stable and not very scary credit growth.
One analyst of the debt scene, Robert Marks of SOM
Economics Inc., Dobbs Ferry, N.Y., notes that
consumer-installment debt is probably only about 8% of
the country's total credit, and if even 5% of that is shaky,
it is worth some worry. Yet it needs to be kept in
perspective. It's small.
It is tempting to ask, so what? If credit growth is
slow, what does it mean? This is where economists
disagree.
To some, including Mr. Marks, credit is the jet fuel of
the economy and sets the limit on the economy's nominal
growth. Moreover, he says, "The slow and steady credit
expansion largely explains both the 'mystifying'
dormancy of inflation" and the long duration of the
current U.S. expansion, currently in its seventh year.
Others disagree, to put it politely. Wayne Angell, a
former fed governor and currently chief economist at
Bear, Stearns & Co., says the debt growth is just a
symptom of stable economic growth, not a cause. Still
others, such as Victor Zarnowitz, a business-cycle
expert, says it is hard to isolate cause and effect.
In any event, the fact remains that the debt bomb of the
1980s has been largely defused, for now. The defense
reduction after the Cold War, the rising tax receipts of
the 1990s prosperity, the deleveraging of American
business have all played a part. While some U.S.
households continue to struggle with debt, debt growth
is unlikely to move the U.S. economy out of the
economic sweet spot anytime soon.
-- BERNARD WYSOCKI JR.
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