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New directions in the relation between public and private debt
Science (New York, N.Y.)
|April 24, 1987
Summary
Government and private debt in the US remained stable relative to economic activity until 1980. Since then, both sectors have seen sharp increases in outstanding debt.
Area of Science:
- Economics
- Finance
- Economic History
Background:
- Outstanding indebtedness of government and private-sector borrowers in the United States remained steady relative to nonfinancial economic activity until the 1980s.
- This stability was attributed to the negative covariation between government and private debt.
- Previous explanations focused on lender behavior, borrower behavior, and credit market institutions.
Purpose of the Study:
- To analyze the historical patterns of U.S. debt markets.
- To explain the phenomenon of steady total outstanding debt relative to economic activity.
- To identify shifts in debt dynamics since 1980.
Main Methods:
- Analysis of historical data on government and private-sector indebtedness in the U.S.
- Examination of covariation patterns between different debt types.
- Comparative analysis of pre- and post-1980 debt market behavior.
Main Results:
- Until 1980, negative covariation between government and private debt ensured overall debt stability relative to economic activity.
- Since 1980, this pattern has shifted significantly.
- Both government and private borrowing have experienced sharp increases, leading to higher total debt levels relative to economic activity.
Conclusions:
- The dynamics of U.S. debt markets have fundamentally changed since 1980.
- The previously observed stability in total debt relative to economic activity is no longer sustained.
- Current trends indicate a departure from historical patterns, with rising government and private borrowing.
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