Flow of Funds Report Show Record Burden of Debt
Even mortgage debt is actually increasing, and increasing faster than GDP (rising from 74.3% to 74.5%) as well as disposable income (rising from 101.3% to 101.4%) reaching new all time highs relative to both. Although housing values strangely increased slightly according to this, mortgage debt relative to housing value increased from 48,9% to 49,6%.
While household debt increased in both absolute and relative terms, business debt increased much faster, and rose from 69,0% of GDP to a record 70.2%. The reason for this surge in lending is a significant decline in the financial savings rate of companies, particularly nonfinancial companies. Undistributed profits -Net profits minus paid dividends- of nonfinancial companies fell from $259.1 billion to $232.1 billion, leaving it at less than half of its 2005 peak. At the same time, business investments increased to new highs in absolute terms. All of this have financed by sharp increases in debt.
All of this confirms what I've been saying all along: the so-called "credit crunch" is a hoax with regard to the overall financial system. The "credit crunch" is only applicable to a limited number of financial instruments, something which is more than compensated by the fact that bank lending is soaring, increasing by 5% between August 1 and November 21, which corresponds to an annual rate of 17%.