Friday, October 2, 2020

Record debt levels will slow a recovery

In The U.S. Economy Was Laden With Debt Before Covid. That's Bad News for a Recovery, WSJ's Shane Shifflett reminds us that the U.S. entered the pandemic recession with record levels of debt.

"Why does this matter? Economies carrying a lot of debt generally have weaker recoveries. Businesses and consumers focus on cutting their liabilities during downturns rather than spending cash--and spending is what an economy needs to rebound."

Shifflett reviews debt growth by sector: households and nonprofits, nonfinancial business, state and local government, and federal government.

"Some kinds of debt matter more than others. The most important piece of a recovery is consumer spending, which accounts for nearly 70% of the U.S. economy. High household debt levels tend to lengthen recessions and amplify their severity."

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