Tuesday, August 10, 2010

From Private to Public: A Transfer of Debt

Corporate profits go up in recessions as mass layoffs lower operating costs and reduce corporate debt levels.  Furthermore, the government takes the hit through unemployment insurance benefits, bailouts and lower income and sales tax receipts.

Corporate profits are going up, this is the result of massive layoffs and cutbacks, which also has raised workers productivity levels:

 Debt levels are falling as more people are defaulting and are finding themselves in the 1-in-4 poor FICO credit score of 600 or less:


The financial obligations (total consumer and auto loans plus total consumer debt and mortgage debt) as a percent of disposable personal income (or income after taxes) has shown a semi-significant decline:



Were is all this debt being transfered to? The Federal Governments balance sheet: unemployment insurance claims first skyrocketing and now remaining steady:

Government bailouts also lowered private debt levels and the biggest hit comes from decreased revenue from federal taxes on corporate profits and state income taxes:


But it all adds up to a skyrocketing increase in the public debt:


There has been an effective transfer from the private sector to the public sector.

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