>Doug, could you or someone explain why retiring equity with debt at a rate
>of 2 percent of GDP per year "implies" that the debt issue of households
>and corporations equals 7 percent of GDP.
Borrowing doesn't of necessity imply anything about equity. The point is that firms haven't been taking advantage of the high stock market by issuing new shares and retiring debt, as theory suggests they should. Instead, the market has been driven higher by firms' purchases of their own and each others' stock, partly financed by internal funds (profits) and in part by borrowed money.
>If corps were turning equity into debt at 2 percent of GDP yearly, in less
>than four years corporate debt alone would equal 7 percent of GDP, no?
>
>And where does the 7 percent number come from, in the first place?
Dunno. What I cited the other day was 8% of GDP, from the flow of funds accounts, referring to the net borrowing (net of lending that is) by the household and nonfinancial business sectors from the Fed's flow of fund accounts. That sounds like a lot, but it's not all that wacky. Here's a history of that series, with decade averages, 1998, and 1999 (first two quarters at seasonally adjusted annual rate). Household borrowing is actually a bit off from 1998's level. What's obviously new is that the U.S. government is a net saver, and the "rest of world" sector is also a big net lender to domestic U.S. borrowers now.
NET LENDING OR BORROWING BY SECTOR, % OF GDP (positive number, net lending; negative, net borrowing)
US rest of house- nonfinan
gov't world holds corps financial 1950s -0.5% 0.0% -1.8% -1.7% 5.6% 1960s -0.3% -0.3% -1.8% -2.8% 7.2% 1970s -1.7% 0.2% -3.6% -3.0% 10.6% 1980s -3.7% 1.1% -2.7% -3.4% 11.0% 1990s -2.2% 2.0% -3.1% -2.3% 6.5%
1998 0.8% 2.5% -6.0% -4.9% 8.6% 1999 1.2% 1.6% -3.2% -4.8% 6.5%
Doug