Uncharted Territory On Borrowings

I have written often in this blog about the serious consequences of not dealing with our gigantic federal deficit spending and the accumulating national debt.   If you need to borrow money you need someone to loan you the money.  Someone who has saved some money and is willing to extend you that loan.  In the last few years, the savers who were willing to loan money to fund our deficits were in Japan and China.  Over the last year, these sources dried up.  We are now borrowing money from the Federal Reserve who has simply printed it.

You get a true idea of how massive this borrowing spree has been when you look at the chart below.  This chart from The Daily Reckoning shows that over the last two years public sector borrowings have been more than 100% of domestic credit growth in both 2009 and 2010.  In effect, public sector debt financing has totally crowded out all new private sector borrowing over the last two years.

In an economy where we need private investment to create jobs and where you need a robust mortgage market to support house sales, public sector borrowings are consuming everything that is available.  The giant sucking sound you hear is a government vacuum cleaner that is not even leaving crumbs for the private sector economy.

As you can see from the chart above, this is "uncharted" (pun obviously intended) territory.  Just a decade ago, this situation was reversed.  Private sector borrowings actually represented more than 100% of credit growth when the federal government was paying off debt rather than increasing it.

I hope you are not in need of a loan.