Balance Sheet Repair and Despair


By Lynn Reaser

Final figures for 2009 depict a picture of sharp contrast between the private and public sectors.  Consumers and businesses continued to work down their debt, while federal, state, and local governments further increased their leverage.

Households saw a substantial improvement in their net worth positions last year.  A sharp rise in stock values and a firming in home prices helped the asset side of their balance sheets.  At the same time, a swing towards more conservative spending habits led to reductions in both mortgage-related debt and consumer loans.  Some consumer leverage was also reduced through loan defaults and bankruptcies.  The bottom line was impressive:  Households’ net worth climbed by $2.8 trillion in 2009.

Companies also adopted a more defensive stance, reducing their debt by 1.8% last year.  This was similar to household’s 1.7% decrease. Last quarter, companies pared back credit obligations of all types except corporate bonds.

Public sector leverage, in contrast, accelerated in 2009.  The debt burden for state and local governments climbed 4.8%, while federal debt soared by 23%.  Total government obligations, now standing at $10.2 trillion, are now closing in on capturing one-third of the $34.7 trillion of total domestic nonfinancial debt in the U.S.

The private sector has heard the message to cut back borrowing.  The public sector is obviously listening to a different channel.

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