Why debt levels are high despite deleveraging efforts

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Nov. 20 2020, Updated 1:47 p.m. ET

As my colleague Russ Koesterich mentions in a recent Blog post, deleveraging has taken place in the financial sector, but other segments have continued to grow and issue more debt.

Market Realist – The graph above shows the non-financial debt–to–GDP ratios as estimated by BlackRock. Non-financial debt as a percentage of GDP has been increasing over the years.

Deleveraging has occurred only in the financial sector (XLF) due to regulatory restrictions. But debt across all other sectors remains elevated.

According to Russ Koesterich of BlackRock, U.S. household debt stands at 103% of disposable income. The current figure is higher than pre-crisis levels, which never went beyond 100%. Though household debt has fallen from 2008 levels due to writing off housing (IYR) loans, it’s still very high.

Government debt in the form of both short-term (SHY) and long-term U.S. Treasuries (TLT)(IEF) too has shot up by approximately $7.3 trillion or 140% over the past six years, according to estimates from BlackRock.

Non-financial debt increased by approximately $9 trillion since 2010. According to Russ, non-financial debt was hovering around 227% of GDP in 2008. It currently stands at a record 250%.

Read on to the next part of this series to learn why corporate debt offerings have been increasing over the years.

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