1. The Great Leveraging

All that growth, was it real?

At the end of the second quarter of 2009, over $50 trillion of debt was on the balance sheet of the United States—its citizens, state and local governments, businesses, farms, and other organizations. That is a remarkable increase from 2000, when total debt was about $25 trillion. In less than a decade, debt more than doubled, whereas the economy grew only by roughly 40%. The sectors with the fastest rate of debt growth during the period were government sponsored enterprises (GSEs) and financials. Exhibit 1-1 shows that government borrowing began to grow relatively faster starting in 2003. Household debt began to decline in 2009. The economy of the United States was using leverage to grow, ...

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