US non-financial debt over the last four quarters totaled $23.6 trillion. US GDP totaled $19.5 trillion. Based simply on these two aggregates, non-financial debt to GDP in the US is 1.21. Assuming an average rate of 2.5% (this is an estimate using Weighted-Average Effective Loan Rate for All Commercial and Industry Loans, All Commercial Banks (EEANQ)) the debt servicing cost for debt in the corporate sector is roughly 3.1% of GDP.
|Debt||GDP||Non-Financial Debt to GDP|
|Avg. Debt Rate||GDP Growth Necessary to Sustain Debt Servicing Cost|
If GDP does not grow at a minimum of 3.1%, then growth is technically stagnant when accounting for debt servicing. For example, if GDP growth were to fall below 3.1%, and debt servicing stayed static as a ratio, that growth would be less than its own cost. Luckily, the Q3 reading for GDP brought home a 3.3% reading. There seems to be some fight left in this economy after all.
The idea for this post came from Victor Shih. On the most recent episode of Grant’s Podcast, Shih analyzed China, which, by his measurements, is in a much worse situation.
Sources: https://fred.stlouisfed.org/series/NCBDBIQ027S, https://fred.stlouisfed.org/series/GDP, https://fred.stlouisfed.org/series/EEANQ