US Debt to GDP Ratio Decreasing under President Trump - Corporate Debt to GDP Decreasing.
President Trump is reducing the Debt to GDP ratio indicating that under his Presidency the economy is growing faster than the national debt!
The debt-to-GDP ratio compares a country's sovereign debt to its total economic output for the year. Its output is measured by gross domestic product. President Trump inherited a debt-to-GDP ratio of 105.5% from Obama. In the first quarter of 2019, the U.S. debt-to-GDP ratio was 103.2%. US Debt is stabilizing under President Trump, while GDP is growing.
This ratio is a useful tool for investors, leaders, and economists. It allows them to gauge a country's ability to pay off its debt. A high ratio means a country isn't producing enough to pay off its debt. A low ratio means there is plenty of economic output to make the payments.
If a country were a household, GDP is like its income. Banks will give you a bigger loan if you make more money. In the same way, investors will be happy to take on a country's debt if it produces more. Once investors begin to worry about repayment, they will demand more interest rate return for the higher risk of default. That increases the country's cost of debt. It can quickly become a debt crisis.
Obama increased the Debt to GDP ratio by 30% over his first two years and more than 40% during his two terms in office.
US “nonfinancial” corporate debt – this excludes debt by banks and by businesses that are not incorporated – rose to a record $15.2 trillion in the fourth quarter, according to data released by the Bank for International Settlements last week. To show how much of a burden this debt is, how it compares to other countries, and to eliminate the effects of inflation, the BIS also expresses this debt as a percent of nominal GDP. Given the growth of GDP in Q4, the ratio of corporate debt to GDP, at 74.4%, was unchanged from the upwardly revised Q3, and was down a tad from the record in Q2 of 74.9%.
The prior record of US corporate debt had been set in Q4 2008, at $10.7 trillion, as corporate debt had begun to unwind noisily, following the Lehman Brothers bankruptcy, and as GDP growth had turned sharply negative.
The China Phenomenon
China, a smaller economy than the US economy, has by far more nonfinancial corporate debt: In US dollar terms, corporate debt in China hit a record of $21.1 trillion in Q1 2018, by far the most of any country. But since then, Chinese companies have been deleveraging under the orders from the central government.
China’s efforts to deleverage its corporate sector, and the growth in its official GDP, have been reducing the corporate debt-to-GDP ratio from a peak of a blistering 162.6% in Q1 2016 to 151.6% in Q4 2018, still about twice the US ratio. In this chart and all charts below, the US debt-to-GDP ratio is added as a red line for comparative purposes:
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