Don’t Worry About The Debt Tsunami Part II
Posted on: June 25, 2009 - Email Article - Printable Version
Recently I wrote that the forward calendar of to-be-issued government and mortgage related debt isn’t going to swamp the economy.
Since I wrote my article Paul Krugman wrote an article citing research done by Brad Setser that supports my thesis. Setser’s analysis predates my article and is really high quality work.
I am certain that Krugman didn’t have any idea what I wrote when he published his article but, just the same, Krugman’s subsequent writing is a helpful addendum to my “why not to worry about the debt tsunami” theme.
Basically, according to the analytical work done by Setser, the amount of public borrowing is being offset by a fall off in private borrowing. Less private borrowing is another way of saying that the savings rate has risen. Below is a graph from Setser’s article illustrating how the rise in government borrowing is more or less being offset by a drop in private borrowing.
Krugman concludes “We’re actually borrowing less from foreigners than we were before.”
Setser, on the other hand, worries that “…the challenge…will be to bring down the government’s borrowing as private borrowing resumes.”
-Mark Sunshine
Disclosure: This article is taken from the website Sunshine Notes with the permission of the original author. All questions regarding disclosure should be referred to the original author.
Comments
So what’s going to spur private borrowing. The housing market and ez credit had driven the economy for the past decade. The mortgage market is nothing as long as it consists of Fannie|Freddie and FHA. Credit card companies reduced good customers to credit limits that previously were secured card limits. In a consumer driven economy this is a disaster.
ps. I don’t think the fall in private borrowing is a function of increased savings as much as a increase in unemployment.
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