Thursday, December 8, 2011

Public Sector Balance Sheets Leveraged to Offset Private Sector Deleveraging

From table D.3. of the Fed's Flow of Funds, we see that as the private sector deleverages, the public sector has added even more debt, which (in my opinion) has (thus far) prevented a debt deflation cycle.


  1. Yes! Analysis of sectoral balances is SO important to understanding the current macro-economic environment. Run that data over time and you'll see that private financial assets are almost a mirror image of public-sector debt. And why governmental austerity in a trade deficit is national suicide.

    MMT for the win! (and everyone who reads Jake @ Econompic should at least skim Pragmatic Capitalism)

  2. Is it fair to assume that the financial debt reduction is also function of capital raising/cash flow retention to cover losses on mortgage assets? If so, basically the entire debt reduction is stemming from declining home values. Thoughts?

  3. Their was a time when you could take your money to a federal reserve bank and get paid in gold for your dollars yes you could be paid in gold for your dollars. Today are money has no real value only the value that the federal reserve chooses it to be. By printing massive amounts of money the result will be decreasing purchasing power of money over time and more and more concentration of wealth. The gap between the super rich and everybody else will widden enormously.