So much of our economic lives come down to a single decision: to save or to spend. Recently, we have seen heightened concern about overspending and rising debt for governments, businesses and households.
At present, the nation’s debt stands at $31.4 trillion. This number is nearly six times the $5.8 trillion reported before the Great Recession, $9 trillion more than levels reported before the pandemic and equates to nearly $95,000 for every man, woman and child in the United States. Federal debt currently stands at 121 percent of gross domestic product (GDP), the highest level reported since the period immediately following World War II in 1946. While the United States is not the nation with the highest relative debt load, that honor goes to Japan (220 percent of GDP), Greece (212 percent of GDP) and Sudan (182 percent of GDP). We are significantly higher than other comparable and competitive nations such as Norway (15.8 percent of GDP), Mexico (40.7 percent of GDP), Germany (46.3 percent of GDP) and Canada (55.6 percent of GDP). Stronger economic growth has put modest downward pressure on the national debt during the past 12 months, but much work must be done to get federal debt back to more manageable levels.
While Nevada cannot deficit spend like the federal government, elected officials in Carson City are no less concerned with whether to spend or save. The Governor and conservative legislators will make the argument that lessons learned during the Great Recession and COVID-19 pandemic make clear the need to prepare the state for future uncertainty. Legislative leadership and members of the progressive caucus will counter that the needs of the state are many, that they have gone unaddressed for far too long and that every dollar that sits in a savings account is one less dollar that can be used to address immediate challenges in education, health care and public safety. They are, of course, both right, and the very nature of our form of government requires a balance between those with competing interests.
Notably, business debt has also increased significantly during the past decade. Total corporate debt currently stands at $12.8 trillion, a value roughly twice that reported in 2012. While this number is high, corporate debt as a percentage of the value of corporate equities is a relatively modest 26.2 percent. This is the lowest level reported since the early 2000s and half the rate reported during the Great Recession. Importantly, increasing business debt tends to reflect investments in new equipment, buildings, inventory and research and development. After-tax profits for businesses remain near the highest levels ever reported, and, while there have been notable instability in some sectors of the economy, delinquency rates on business loans remain at a very low 1 percent. This is good debt, and stability in light of higher interest rates is encouraging.
Debt held by households is also an important consideration. The Federal Reserve Bank of New York’s most recent report on household debt and credit reported total outstanding liabilities of $16.9 trillion, $2.8 trillion higher than at the end of 2019, before the pandemic recession. Mortgages, credit card balances, auto loans and student loans all rose significantly during 2022, a period in which personal saving rates bottomed at a very low 2.7 percent. While these statistics are concerning—as are recent reports of higher default rates among younger consumers��household debt service payments as a percentage of personal income remain below 10 percent, a rate never achieved in the 1980s, 1990s, or 2000s. Consumers have room to continue their recent spending spree, but spending is coming at an ever-increasing cost, with debt now well outpacing wage growth.
Whether to save or spend may very well be a defining factor for our nation’s economic prosperity—or problems—over the next decade. While I will always extol the virtues of saving, this should not be interpreted as bad. Debt has helped this country weather the recent pandemic. Debt allows entrepreneurs to create new companies and businesses to expand. Debt allows families to buy cars and homes.
We can neither spend nor save our way to prosperity, but a prudent balance of these competing options will almost certainly lead to it.
Members of the editorial and news staff of the Las Vegas Review-Journal were not involved in the creation of this content.