Adding to my concerns for the nation’s economic prospects is the current level of private indebtedness. As with government debt in the United States, private nonfinancial debt has grown steadily over the post-World War II period, from 40 percent of GDP in 1945 to almost 175 percent in 2009. Every consumer and business that is a net borrower would benefit from lower interest rates.
And just as noteworthy, it should not escape our notice that rising inflation would trim the real value of their indebtedness. Thus, high private indebtedness will contribute to the political pressure on the Federal Reserve. Three paths forward Returning to my opening comments, I see just three ways forward in dealing with our current and prospective fiscal imbalances.