ABSTRACT
The amount and, more importantly, the burden of debt, both public and private, has been rising rapidly in recent decades throughout the industrial world. This increase is clearly evident from a variety of sources whether measured as a ratio of public debt to gross domestic product (GDP), debt to asset ratios for corporations, or the ratio of household debt to after-tax income. To illustrate, the gross public debt of industrial countries has risen to more than 70 percent of GDP, up dramatically from 41 percent in 1970.5 Private-sector debt as a percentage of GDP in recent years has climbed to more than 100 percent of all goods and services produced in a given year in most large industrial countries and to more than 200 percent in Japan.6 Private nonfinancial debt as a percentage ofGDP is now nearly 150 percent ofGDP in
the United States, having climbed up from 55 percent in 1952 and 100 percent in 1975.7 A similar picture is evident with household debt in the United States. Prior to World War II, the ratio of household debt to after-tax income was less than 10 percent; by the 1950s, it had risen above 30 percent; and in 1998 it was over 100 percent. Corporate debt/equity ratios have also risen in recent decades in the G-7 nations (United States, Canada, Japan, Germany, France, Italy, and the United Kingdom), albeit much more modestly. 8 The G-7 country classification is used here because it has evolved over time as a way of facilitating analysis. Rather than being based on strict criteria, economic or otherwise, the G-7 simply signifies the seven largest countries in the world in terms of GDP. They are also referred to as "the major industrial countries."
