Saturday, October 20, 2007

The Debt Pie

Today, being Saturday, one chart: the make-up of the debt of the non-financial sector, i.e. that owed by households, the government and corporations - everyone except banks and other financial institutions. As of the second quarter of 2007, it amounted to nearly $30 trillion or 220% of GDP.

Data: Federal Reserve

What immediately stands out is the size - absolute and relative - of mortgage debt. Ultimately, this is the very reason why the bursting of the real estate bubble is real cause for alarm. A very large percentage (over 50%) of this $13.8 trillion in mortgage debt has been securitized and distributed widely in the US and abroad as mortgage pools, GSE securities, CMOs, CDOs, etc.

Therefore, the mortgage debt crisis is not an isolated risk event. It has the potential to shake the whole asset/credit economy from its very foundation and it will take much more radical solutions than band-aids (eg super-SIVs) to prevent serious consequences. It seems to me that this problem, just like peak oil and climate change, is going to end up being highly political and not merely technical or financial.


  1. Kudos on an insightful blog.

  2. Can you tell us or provide link to how this percentage of debt compares to other periods of time in the US?

    Thanks for the blog. I am not an economic wonk but your writing skills and choice of subjects make it enjoyable.

  3. Thank you for the kind words.

    Data can be found on the Fed's Z1 quarterly releases. You have to dig the particular data out, because the releases are each over 100 pages long. But they are very comprehensive and useful.

    Google "FRB Z1" and you will be on your way.


  4. Great blog. Brief and to the point. As they say one picture is worth a thousand words.

  5. Great analogy to peak oil and climate change. Like debt, they're problems imagined to be magically rectified far into some technology sparkled future. T. Boone Pickens and Jim Hanson say tomorrow is here, I agree.

  6. Kondratieff would say "wipe out all the debt and start a new cycle"

  7. great blog.....but could someone tell me how and when all this will end................

  8. Can the Nazdog bubble even compare to what we have going here? The climate change is questionable that is caused by humans. From 1941 to 1970, the Earth was cooling as CO2 emissions were rising. How can this be explained? Greenland was once a green environment during the Medieval Warming of over a thousand years ago. Greenland is now covered with ice as population and pollution have both risen exponentially over the last millennium...

  9. Is this conflicting data hellasious? I'm looking at 10.1 trillion in mortgages for Q2 of 2007:

    Still, a doubling of mortgage debt since 2001 is troublesome.

  10. Full link?

  11. Anon,

    It will end in a, or if we're lucky multiple, debt deflation(s) which is to say that some large portion of total global financial assets will be either destroyed or repriced, with knock on effects for the real economy.

    Differently, permanent credit inflation becomes unsustainable as it grows more rapidly than real economy surplus value creation and as, ponzi-like, greater credit creation necessarily then comes to substitute for a relative then absolute shortage of that value. The now long run attempt to extend the credit cycle virtually guaranteed a more severe result or, unevenly, results.

  12. Bye bye miss american pie:

    Jason B

  13. re: mortgage amt. conflict

    You are looking only at households. The figure I provide includes all mortgages, including multi-family and commercial. See page 59 of the release.

  14. As you suggested earlier, for a growing fraction of holders mortgage debt was similar to brokerage margin debt -- it was used more for investment and/or speculation than it was to buy a place to live. Opportunity-seeking and greed being what they are, that game of musical chairs was not going to let up until the music stopped. Which it now has.


  15. You tell great stories with a pie chart and a few well chosen words and insights. You da man!

  16. What about the asset side of the equation ?

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