Look at the comparison between changes in household debt and the current account balance. I hope that Peter will throw some more light on this relationship. An eminent retired blogger whom may of you appreciate formatted this graph for me.
http://www.un.org/esa/policy/policybriefs/policybrief4.pdf
I've been summoned (or some other Peter).
ReplyDeleteI'm not an expert on household debt, so this is not going to be very scholarly. There are two things to notice about this chart, the co-movement of HH debt and the current account and also the secular deterioration of the HH balance sheet vis-a-vis the international position.
The first is more or less an outgrowth of national income accounting, especially as seen from a Keynesian perspective. The US spends more than it earns in the trade sector, and this amount is offset by an inflow of investment. This inflow purchases assets from HH and others, which is negative savings on our side. That's the accounting part. The Keynesian part is that this income from sales on the capital account now supports a greater share of effective demand, rather than income derived from value-added activities. (Think refinancing mortgages, use of credit card debt.)
The rise of HH leverage relative to other sectors is not in my zone, other than the obvious fact of the housing bubble; maybe others can help out here.
Incidentally, in my eagerly awaited intro macro text, a financial view of the economy (flow of funds) plays a big role.