Growing Indebtedness

I have posted here on growing indebtedness and financialization. The table below comes from Duménil and Lévy's recent book The Crisis of Neoliberalism.
As they note (p. 104) in regard to the table, one can see: "the rise of the debts of all US sectors as a percentage of GDP. This growth remained moderate after World War II, from 126 percent in 1952 to 155 percent in 1980, and exploded during the neoliberal decades, up to 353 percent in 2008." Yet, between 1952 and 1980 public sector debt fell from 68 to 37, and the moderate increase was all in private debt. Further, note the explosion of the financial sector debt increasing six-fold in the three decades after 1980. Over the whole period, the financial sector debt as a share of GDP grew by almost 40 times. In their words again: "the indebtedness of the financial sector is a new and spectacular phenomenon, typical of the neoliberal decades."

Comments

  1. Hello,

    This post raises a question about the relationship between new debt (whether public or private) and GDP growth.

    My understanding, based on reading Lavoie and Alfred Eichner, is that in order to create new expenditure, which is required for GDP or income to grow, there must be new debt. What I can't figure out is how this relationship works in practice in terms of the financial system and why the last two or three decades have seen so much more new debt but less growth in GDP.

    Any thoughts or direction to reading on this subject would be greatly appreciated.

    Thanks,

    Art

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  2. What you need for spending is a stock, which could be debt, or could be simply money. That per se does not imply that debt grows faster than income, so debt-to-GDP ratios could be going up or down. Further, public debt in domestic currency is safer than private debt and that foreign denominated debt. Growth also can be promoted by income redistribution towards workers with higher propensity to consume.

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