JH asks a Federal Reserve official about the decline in private borrowing:
I solicited advice from you quite a while ago on a debt deflation question to ask a Fed Reserve speaker at a work function, and as you predicted, he pretty much dismissed drawing any conclusions from the Fed Z1 report which showed that without government debt growth the US was in severe debt contraction. The speaker said the contraction was a temporary result of there not being enough good people or businesses worth investing in presently. On some level this may be true, but he still completely avoided discussing the implications of continued credit contraction to the overall economy.
It’s a pity JH wasn’t allowed a follow-up question, as the obvious one was as follows: how do you explain this “temporary result of there not being enough good people or businesses worth investing in presently” in light of the fact that a) there are more people in the USA than ever before, and b) the fact that there has NEVER been a comparable contraction in private credit in the post-war era.
The other question I would have liked to ask the Fed official is this. How long do you think government sector credit can continue to expand and prevent Z1 from falling if the household and financial sectors continue to decline?