Quote of note:
From the beginning of 2001 to the end of 2003, the economy added $1.317 trillion in gross domestic product and $4.2 trillion in debt.
That means that each new dollar of economic output was accompanied by $3.19 in new debt. So now, for the first time, the debt-to-G.D.P. ratio stands at more than two to one.
Throw in financial credit - the debt that investment banks and others use to finance trading activities and the like - and total debt has more than doubled since 1994.
…But the economy's apparent reliance on credit to fuel everything from home buying to the military budget is troublesome. If incomes and revenues fail to rise, stressed consumers may have a tough time keeping up with payments. "It's been much more a matter of households borrowing than businesses," said Benjamin M. Friedman, a Harvard economist. "You have to hope that people are going to be able to service the obligations they've taken on."
The Next Shock: Not Oil, but Debt
By DANIEL GROSS
Published: September 5, 2004
WITH oil prices hovering above $40 a barrel, experts have calmed frayed nerves by noting that today's services-driven American economy is much less addicted to the black stuff than yesterday's industrial economy. From 1973 to 2003, after all, the amount of oil and gas needed to create a dollar of gross domestic product fell by half. Structural changes in the economy have let the nation absorb the recent shock of rising crude.
That's the good news. The bad news is that other recent structural changes in the economy - the federal government's shift from surpluses to huge deficits, the national predilection for consumption over saving and housing prices that climb faster than incomes - have increased the country's reliance on another kind of fuel: credit.
As a result, the American economic ship, which has weathered the recent run-up in crude oil prices, may be more vulnerable to sudden surges in the price of money. If the rate on 30-year fixed mortgages were to rise from 5.4 percent today to 7.5 percent next February, homeowners could get walloped.
