More On US Debt and US GDP Growth

A Floyd Norris piece in the NY Times fits neatly into the recent posts on debt. 

Off the Charts - Ratio of Troubled Loans Means Banks Aren’t Out of the Woods - NYTimes.com: "February 27, 2010
By FLOYD NORRIS

" MORE than $1 in every $10 that American banks have outstanding in loans is lent to a troubled borrower, a ratio far higher than previously seen in the quarter-century that such numbers have been compiled.

The problems are greatest in construction loans for single-family homes, where nearly 40 percent of the loans either are delinquent or have been written off as uncollectible. But they are also high in mortgage loans for single-family homes, where $1 in every $8 of loans is troubled.

The figures were released this week by the Federal Deposit Insurance Corporation, as it announced that the number of banks in trouble had risen sharply, and forecast that the rate of bank failures would increase.


The report served as a stark reminder that the banking system remained in perilous health, despite large bailouts of major financial institutions. Many smaller banks are especially exposed to commercial real estate loans, where problems are growing.


The F.D.I.C. also reported that the amount of outstanding loans and leases at all American banks was falling, even after adjusting the numbers for loans that were written off. The total volume of loans and leases outstanding at the end of 2009 was $7.3 trillion. That figure peaked in mid-2008 at just under $8 trillion.

....."

Floyd Norris comments on finance and economics on his blog at nytimes.com/norris."

Aubrey here:  American consumer expenditure represents about 70% of American GDP.  American consumer debt growth has fueled American consumer consumption growth.  (Details later).  Borrowing to buy houses, and then refinancing them has been the greatest driver of American consumer debt growth, and therefore of consumer consumption growth.  If the growth rate of consumer debt slows, in particular if the consumer is paying down (or forced to pay down) debt, the rate of consumer consumption growth must slow unless the government steps in with fiscal stimulation, which USG has, thus increasing government debt.  When this stimulus is removed, either GDP growth will slow or consumer debt will rise.