A nation's debt is commonly expressed as a ratio to its gross domestic product (GDP) to facilitate meaningful comparisons over time. The total public debt, as depicted in the above chart, represents a form of government federal debt that encompasses both "debt held by the public" and "intragovernmental holdings." Several factors influence the federal public debt, including government spending, tax policies, economic conditions, and interest rates. Budget deficits arise when government expenditures exceed revenues, resulting in an increase in the public debt. Conversely, budget surpluses can help reduce the debt burden. The management of federal debt falls under the purview of the Department of the Treasury, which regularly conducts auctions of treasury securities to meet borrowing requirements. These securities are purchased by a range of investors, including individuals, financial institutions, foreign governments, and central banks, effectively lending money to the government. It's worth noting that historical trends show an increased ratio during periods of war and economic recessions.
Other popular classifications of debt are corporate and household debt (see charts below).
Renowned investor Ray Dalio identified a long-term debt cycle, a cyclical pattern that typically spans 75-100 years. In his research, Dalio has analyzed the total debt in the United States, encompassing public, corporate, and private debt, dating back to 1920. For further details, you can refer to Ray Dalio's publication "Principles For Navigating BIG DEBT CRISES" on page 13.
Non-financial corporate debt excludes debt from companies in the financial sector. It generally includes bank loans and corporate bonds that were issued to raise money.
Household debt includes different types of debt, such as home mortgages, home equity loans, auto leasing loans, student loans, and credit card debt. The ratio rose gradually until 2008. US households made significant progress in deleveraging (reducing debt) during and after the financial crisis.
The actual burden of all this debt can be illustrated by debt service payments as a percentage of Disposable Income.
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