Home > The Economy, Uncategorized > Graph of the week: Private debt to GDP ratios for USA and Australia 1920 – 2010

Graph of the week: Private debt to GDP ratios for USA and Australia 1920 – 2010

from Steve Keen

This graph shows both how much greater America’s private debt level is than Australia’s, and also shows that America is rapidly deleveraging now. Thus even though Australia’s debt-driven boost to aggregate demand was larger in 2008 than America’s—since private debt grew 17.2% that year in Australia, versus 11.1% in the USA—the sheer scale of the USA’s debt compared to its GDP means that its dependence on rising debt was even more extreme than ours. It also meant that when the debt went into reverse, the depressing impact of this was greater for the USA than Australia.

  1. Gavin Mooney
    December 15, 2010 at 10:51 am


    How do these debt to GDP ratios trace against income inequality in the 2 countries over the same time periods?

    Gavin Mooney

    • Alice
      December 16, 2010 at 9:30 am

      Income inequality follows a trajectory rather similar to the rise in household debt…in both countries. Inequality has widened. The rich got oh so much richer.

  2. Peter Radford
    December 15, 2010 at 5:29 pm


    I agree that we need to account for the source of the resources used to produce the annual accretion to national wealth and income. So your idea of looking at the debt in the context of GDP is a healthy step towards getting the accounting correct. But should we not also then look at a notion of government “equity” – we look at private sector net worth, so why not? And should we not parse the debt into that portion used to produce future income and that used for current consumption?

    I think it’s time to get national accounting onto a proper footing.

    • December 15, 2010 at 6:31 pm

      I think Peter has raised a cardinal point. I don’t see how there can ever be any sensible discussion of government expediture that does not distinguish between current consumption and investement. Rural America is still crossing streams and rivers on bridges built by public works programs in the Thirties.

  3. merijnknibbe
    December 15, 2010 at 8:31 pm

    Another question:

    conversion from war production to peace production after (and even in) 1945 in the USA was, to my knowledge, a rather bumpy but in the end highly succesfull and surprising fast road (even when we take into account that the post-1945 army in the USA was much, much larger than the pre-1939 army). The same holds to my knowledge for Canada. In the USA, this process seems to have been fuelled by leverage. There was a large fall in government spending and borrowing – but private borrowing and spending (especially investments, which were so low in the thirties) increased.

    What happened in Australia, where no such leverage took place? (the background of this question is that, in my opinion, the Great Depression should be analysed taking the twenties and the post war period into account – might teach us some lessons for today)

  4. Alice
    December 16, 2010 at 9:23 am

    Hang on a minute – just because the US is worse – why would anyone think Australia’s level of private sector debt is OK? Thats just relative. I mean look at the trajectory since 1970 – the great dawn of neoliberalism.
    Australias debt level isnt sustainable either. My sympathies for the US which is worse but Australia has been listening to and following the flawed rhetoric (the great low tax no regulation business model) from the US all these years. We will get to experience the pain of our own foolishness along with the US.

  5. Peter T
    December 16, 2010 at 10:11 am

    I take the point about accounting for current consumption and investment, but isn’t the debt issue a flow rather than a stock problem? It matters less how much I owe than how much I have to pay back in any given period (acknowledging that the horizon is much shorter for me as an individual that it would be for a company or a state). States have routinely run up debts that will take decades – sometimes centuries – to repay.

    What happened to the cash flow supporting repayment in the US in 2007 or thereabouts?

    • Peter Radford
      December 16, 2010 at 5:55 pm

      Peter T.:

      I agree. That’s why I refer to the Fed’s statistic on financial burden which is their attempt to relate the annual cost of carrying the debt to the income from which that cost is subtracted. That data series tells us that debt loads have lightened considerably since 2007 – when they reached a modern peak of 18.86%. That ratio is now down to 17.02% which is its lowest since 1998. So private sector debt servicing is less of a problem than it has been for a while.

  6. Peter T
    December 18, 2010 at 10:10 am

    Peter Radford

    Missed that bit. But that aggregate figure does not tell me much. Is it broken down by who owes? Private sector debt if owed by banks is one thing, by households another. The household sector has been hit by rising unemployment, probably an increase in the proportion of income taken by non-discretionary costs, and by static or falling wages. My impression is that a lot of the financial rejigging since 2007 has reduced the burden of debt for banks, but hardly at all for households.

    Has anyone done this sort of analysis?

  7. Peter T
    December 19, 2010 at 10:54 am


    There’s something here I do not understand. The figures show the repayment burden fluctating between 15 and 17 per cent of disposable income (or 14 to 18 per cent for homeowners). Highest round 2007. I can see that having repayments rise by a third would be an annoyance, but 18 per cent seems bearable. BUT, Steve Keen’s graph above shows private debt more than doubling over the same period. Clearly repayments did rise by the same proportion. Did the term of the debt get much longer? Or did the debt fall on some smaller class of households?

  8. Lloydie
    December 29, 2010 at 2:27 am

    I believe US debt accumulation is symptomatic of US tax rules, which allows the deduction of interest on home mortgages. Correct me if I’m wrong, but I think this was the case even if consumer items like cars were financed with a home mortgage.

    With interest rates artificially suppressed via two Federally funded mortgage guarantors, Fannie Mae and Freddie Mac, that would explain partly why America’s private debt load grew so large.

    In Australia, we have negative gearing but the interest rates were not artificially suppressed via indirect Government intervention. Of course, interest costs on consumer loans were non deductible so there was less incentive to accumulate private debt.

    Still, it is surprising how large America’s debt load was relative to Aust. With interest rates rising and access to offshore credit increasingly restricted, this will probably not change the fact that credit growth is going to be negative for both countries going forward.

  9. Lloydie
    December 29, 2010 at 3:21 am

    Please note the McKinsey report on global debt estimates US private debt to be lower at around 132% of GDP at end of 2007.

    See: http://www.mckinsey.com/mgi/publications/debt_and_deleveraging/index.asp

  10. Lyn
    June 10, 2012 at 3:49 am

    See http://www.incrediblecharts.com/economy/keen_debt_gdp.php for a ore accurate chart representation of Australia and US private debt. This reflects more closely the McKinsey report.

  11. Beaker
    October 30, 2012 at 9:05 pm

    How would one upload a graph?

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