The deleveraging of the U.S. Economy continues for 1997. After rising at double-digit levels through the 1980s, credit growth has dropped back down in the 1990s. Most of the change has been by the government, spending less in the wake of the Cold War, and taking in more tax receipts both at the federal level and in the states. And in business, balance sheets are also in quite good shape. It has generally been consumer debt that was cause for concern, but even the big run-up in consumer debt does not really alter the picture of slow, stable and not very worrisome credit growth.

To be sure, debt levels remain high, and delinquency rates are troublesome. But the past few months have brought some good news about the problems of deadbeat and delinquent borrowers. As Federal Reserve Chairman Alan Greenspan highlighted these problems in his testimony before Congress in July 1998, he also noted that banks have tightened their credit guidelines, household balance sheets are improving, mortgage delinquencies are at low levels and consumers are adding debt at a slower pace. Growth in household debt has fallen to above 6% this year, down from more than 8% in 1996.

To be found in Mr. Greenspan's full testimony last week were his comments on aggregate credit growth. This is the sum of government, business and consumer borrowing. The total outstanding is about $15 trillion, broken down roughly into one-third government debt, one-third business debt and one-third consumer debt. And the good news here is that credit growth has been slow and stable, a sharp change from the 1980s. Today the annual rate of total debt growth in the U.S. Economy is about 5%. That is about the same rate as economic growth unadjusted for inflation. Also in the testimony, Mr. Greenspan indicated that in 1998, credit growth should remain in the middle of the Fed's target range of 3% to 7%.


-- Posted the week of August 1, 1997

Source: The Wall Street Journal July 28, 1997 pg. A1