US debt closes at 370% over its GDP of USD14 trillion. So total loan (private and public) is about USD51.8 trillion. However, if you look at the bank credit, it actually shrinked quite substantially. What really happen? Where did the money goes?
For a moment, lets not deal with the matter on where the money goes. Just rationalise what is 370% means in a small corporation. Suppose a company started a business with USD10 million, and gear up with USD37 billion. Meaning the debt to equity ratio is 3.7 times. With total of USD47 billion, perhaps the company has a return of say 10% of USD4.7m. Say the loan is a 10 year loan, at 4%, the repayment of principle is USD3.7m + interest of USD1.48m = USD5.18 million. How is the earnings of USD4.7m pays for the debts and interest of USD5.18m?
Debt service ratio is less than 1 time. Can this be sustainable? Usually with this type of over leveraging will end up in default.
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