TwoFacesofDebt

8/7/2019 TwoFacesofDebt

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Federal Rererve Bankuf Chrcag(J

e b t


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This booklet is the fifth revision of "Debt-Jeckyland Hyde: originally published bythe Federal Reserve Bank of Chicago in theNovember 1953 issue of its monthly review,Business Conditions. The original article waswritten by Dorothy M. Nichols. The latestrevision was written by Anne Marie L Gonczyand Timothy P. Schilling.Rrst revision: October 1963Second revision: Februery /968Third revision: October /972Fourtfl revision: August /978Fifth fBvision: September /99220M


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Faces of DebtNoone likes to be in debt. Yet debtoftenallowspeople to raise their

ltving standardsand increase theirproductivecapacities. Debtentailsrisksandfutureobligations, butcanal80provideanu!ansofgeneratingfuture inronu!.

Everyone, at 8Onu! tinu! or ancther, has seen the disastrous conse-quencesofexassiveaccumulationofdebtbyaper80n orbusiness. Con-versely, growth and prosperity have flourished at tinu!s when overallindebtedness was rising rapidly, and sonu! econcmic slowdowns havecoincidedwithperiodsofdebt reduction. Thus, debt appears to be bothgoodandbad-aparadoxthathaschallengedphiw80phers{orcenturies.This bookletexaminesdebt in theAmericaneconcmyand thecompositionand distributionofdebt betweenmajorgroupsofdebtorsandcreditors.While the reviewpointsOut80nu! risks thatcan beassociated withan over-relianceon debt, itshows the vitalroledebtcan play inchannelingsavingsintoproductiveinvestnu!nt.

Debt r e d i tPeople who borrow are often looked upon as lacking thrift and a

sense of responsibility. But people with good credi t ra tings areviewedwithrespect-oftenevenwith envy. Yet, the transaction is th esame-to obtaincredit is to incur debt. Recognizing this identityis thefirst step toward understandingdebtand it s functioninour economy.The next step is recognizing the different forms ofdeb t. And th e finalstep is understanding the uses of debt.

Everyone knows what debt is when he or she owes i t, but peoplesometimes forget that most of the financial assets they try to accumulate are the debts ofothers. A briefsummary of th e things that makeup the total deb t o f th e economy calle attention t o some of the lessfamiliar forms of debt and suggests the relationship between debtand economic activity. The principal forms of debt are shown i n t hetableonpage3, grouped accordingto the economic sectorsowingthem.

The types ofdebt owed by each sector reflect differences in bothborrowers' credi t needs and conditions under which lenders arewill ing to supply funds. One important difference in debts i s theirmaturity-the length of time before the deb t must be repaid. Thisvnries from "on demand" to several decades. Other characteristicsthat vary with th e types ofdebt are th e collateral a borrower offers,i f any, th e contractual arrangement for payment of in teres t andprincipal, and th e negotiability of th e debt instrument itself.

Thereare also other types ofclaims thathave someofth e characteristics ofdebt. A business needing funds, for example, canobtain them

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Credit Credit is1$ the mlly a systemendunng whereby atesumony person whoto man s can't pay

confidence gets anotherInman person who

can't pay to)a., . , guaranteenit b that he

can pay.

ChdrltlD i r ~ " s

2

eitherby issuingshares ofstockorby borrowing. Both th e purchaserof th e stock and the l ende r a re suppliers of funds. But a stockcertificate represents an ownership interest (equity), while th e notesand bonds are a form ofdebt. Bothare claims againstthe income andassets of th e business, but under our lega!system, thedebthas a priorclaim, providing protection to creditors (lenders) and limiting theirrisk, both up and down, while owners (stockholders) share al l therisks of success or failure.

The concept of debt used here includes themoney-type liabilitiesofthe government and financial institutions-eurrency, deposits, andshare accounts. These instruments differ from other debt in somerespects. Some, for example, are used in everyday transactions.However, their inclusion i s appropriate for th e purpose here-topresent a comprehensive view ofall financial claims that al l uni ts ofall sectors can be called upon to meet, either on demand o r inaccordance with contractual agreements.

. . . t o hou se hol dsMost people are familiar with home mortgsges, installment

contracts, charge accounts, personal loans, and c redi t cards . Somek inds o f debt, l ike home mortgsges, are typically long-lived, withrepayment schedules that span most of a person's active workingyears. Others,like charge accounts, aremeant to fall due so soon thatth e use ofcredit instead ofcash involves littlemore than convenience.

People differ in th e extent to which they use credit. Some seldomborrow,whileothersusecreditanytime theymake a large purchase. Animportant reason for th e widespread use of consumer installment andmortgsge credit is that a family's needs usuallypeakwhile th e family'sincome is still relatively low. EBBentially, young families are able andwillingtoborrowbecause theyexpecthigher income inthe future. Thus,by using credit, they can obtain th e use ofexpensive goods (homes, cars,appliances) rather than renting them or first sav ing a ll th e fundsrequired to purchase them. Additionally, th e useofcreditmay facilitatethe purchase of a good or service (education, for example) that willenhance future income and th e ability to payoffthe debt.

Purchases can be made, of course, by drawing on savings, whichare financial assetsaccumulatedearlier. Significantly, a personwithsavings is most apt to qualify fo r credit. As Ogden Nash put it :

OM rulewhich woe betides thebankerwluJ fails to heed it,Neuerlend money toanybodyunlessthey don'tMed it.

The point is that indebtedneBBmay increase,not because borrower s l ive beyond their means, but because they would rather borrowthan give up earning asseta for purchases that cannot b e paid forcompletely from current income.


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Types of Debt 01Ned. b y S ec to r(billions of dolleB)

Financia'Households Businesses Govem_nts Institutions Rest of World-loins. lecurrties. and 4th., pay.

2lIJ&1 Mortgages 2,934 Fann Savings Bonds 515 Bonds 120Consumer mortgages 84 bonds 126 Pension Businesscredit llJ9 Other Other fund investment 611Other mortgages 976 federal reserves 1,961 Borrowingsecurities 3,786borrowing 265 Bonds 1,1lll9 Insurance from banks 35

Trade State aAd reserves 813 Commerciallocalpayables 759 securities 849 Borrowing paper 75Taxes from Federal OtherPension Reserw andpayable 58 food and Home LDan borrowing 105Borrowing insurance banks 120from banks 741 reserves 1.014 Borrowing onCommercial Other securities 380paper 117 payables 102 CommercialFinance paper 366company Mutual fund[Dans 309 shares 579foreign Otherloans and liabilities 465rnvestment 549Otherborrowing 155

4.S1i2 Mon..,..type hub 11118$ Currency in Commercial Foreigncirculation 254 bank currency 113Deposits deposits 2,291at Federal SavingsReserve banks, institutionvault cash, deposits 1,251and other 155 Moneymarket25,429 mutual funds 498

Owed to U.S. holders only.Source: Estimates based on Federal Reserve Row of Funds data for year-end, 1m.

. . t o bu s in e ss e sEntrepreneurs and managers are probablymore aware ofdebt than

consumers, because most businesses make use of credit in one form oranother. Debts ofbusinesses includebonds, notes, and commercial paperissued by corporations, mortgages on l and and buildings, other bankloans, and trade payables. Companies, like individuals, oft.engo into debtto buy long-lived goods. Somebusiness assets, such as factories and officebuildings, are so costly thatmany companies would lose years ofprofits i ftheywaited until they could save enough to buy them outright. Businessinvestment in such asset s is particularly important because it is a keyingredient ofgrowth, both for th e f irm and the economy in general.

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If you'd Neither aknow-he borrowerva ue of nor amonev lender beg


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life insurance companies, finance companies, money marketand othermutual funds, and pension funds. Apart from th e role of depositoryinstitutions in providingcheckingaccountservices, these organizationsact hugely as intermediaries-acceptingfunds from savers and lendingthem to borrowers.

While most depositors probably never think of their deposits inbanksasbankers'debts,one canbe surethatbankers do. Banks in effect"borrow"deposits from theircustomerswith th e promiseto return themeither on demand or aftera specifiedperiod. Likewise, savingsand loanassociations, life insurance companies and other financial institutionsreceive funds from their shareowners and policyholders with th e promise to return them on request o r under fixed contractual conditions.Generally, a financial institution "goes into debt" at th e initiative ofitscreditors (customers whose accounts it holds). But when commercialbanks and savings institutions issue certificates ofdeposit, which havefixed maturities, they "borrow" deposit funds in much the s ame wayother corporations acquire funds through the sale of securities.

Financial institutions pay interest on certain types of liabilities,such as t ime deposits and insurance reserves. Since the early 19808,depository institutions have been able to pay interest on somecheckingaccounts, although they still cannot pay interest on demand deposits .. . . an d to th e re st o f t h e ," ,orld

As international trade has expanded, businesses and governments in other countries have become increasingly indebted toinstitutions in this country. A portion of t he deb t owed by foreignentities is incurredbecauseof trade activities. The balance primarilyrepresents long-term investment abroad. Funds are obtained throughthe issuance of bonds and commercial paper , through loans frombanks and other lenders, or through direct investment abroad bydomestic businesses.

s se t sWhile debt is a claim on the assets and earnings of those in debt, it

is also part ofthe assets of their creditors. Just as theremustbe a buyerfor every seller, for every debt incurred there is someone else whoacquires a financial asset ofequal amount. For example, a debtsuch asasavings bond, a depositaccount, ora corporatebond is asmuchanassetto the owner as a stock certificate or t it le to real estate. In th e case ofcommercial banks and most other financial institutions, almost al lassets consist ofdebt instruments-promissory notes, bonds, and mortgage&-eVidencing that some business, government, or person has borrowed from them. In fact, many of these institutions are prohibitedfrom investing in equities in any sizable amount.

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He thatlends, gIves

No man'scredit is asgood ashis money

Why are most people willing to hold the debts ofothers as assets?Ormore to the point, why and how do we save? People choose to holdcurrency and checlring accounts to facilitate spending. But they arereluctant to hold more than needed for transactions because currencyand some checlringaccountsare nonearningassetswhilethose checkingaccounts that are interest-bearing typically earn less than other debtassets. These other types of debt offer a convenient way of storingsavings (funds that ar e not needed for immediate spending) whileearningreturns in th e form of interest.

Themany forms ofdebt owedby different types ofborrowersprovidea wide choice ofoutlets for funds that canbe loaned. Lendersmake theirselectionsbased onthe types offinancial assets thatbestsuit their needsand, to a large extent, that reflect the length oftime they ar e willing toforego use oftheir funds andthe degree of risk they ar ewilling to accept.

A lenderwho plans to use th e funds for a vacation cruisewithin ayear, for example, is more likely to purchase an asset such as a shorttermTreasurybill ora certificateofdepositmaturingwithin ayearthanto lend th e funds for a 30-yearmortgage.Alonger-termdebtassetmightbe acceptable, however, ifit is one that can be sold easily, enabling th eholder to ge t cash for th e asset, ifneeded, before the maturitydate. But,it is important to recognize that th e price atwhich a long-term securitycould be soldmightbe considerably above or below the initial purchaseprice, introducing an added element of risk to th e lender's investment.The ease of converting an asset into cash without loss is referred to asit s liquidity.

In addition to differing in terms of maturity and liquidity, debtsdiffer in their risk ofdefault andin th e extent to which they are securedby collateral-i.e., assets pledged by a borrower that the lenderwouldacquire in the case ofnonpayment. Lenderswil l tend to assumegreaterrisks for higher rates of interest. Generally, the smaller th e risk ofnonpayment, the greater the collateral, and/or the greater the liquidityof th e debt, th e lower the interest rate. This reflects the premium saversplace on keeping their funds safe, liquid, and conveniently available.

Borrowers compete for th e use offunds by offeringfinancial instruments with different terms (interest rates, security, and schedules ofpayment) and maturities (length of payment period) that may beattractive to lenders. Although the number and types of debt instruments have expanded rapidly in recent years, the financing options todifferent types ofborrowersvary greatly. While a corporation may be ina position to decidewhether to selllong-termbonds, borrow from bankson a series ofshart-term notes, or issue commercial paper, most homebuyers do not have as wide a choice. Generally, they must obtainmortgage loans. I fmortgage terms are more stringent than desired, abuyermay not be able to obtain as much credit as he or she wants andmay have to accepta relativelyshort-term loanwith higher paymentsthan expected. However, the increasingnumber ofmortgage options


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available (shorter maturit ies, balloon payments, adjustable mortgage rates , p repa id points) has made mortgage f inancing moreaccessible. Still, ifnone ofthese alternatives are viable, th e consumer may have to consider renting instead.

Althoughmost borrowershave some choice inthe terms they offerlenders for the use of funds, the federal government is unique i n i tsappeal to th e whole range oflenders. Because ofthe huge volume ofits borrowing, the ease with which i ts deb t can be traded, and it ssuperior credit rat ing, th e government can exercise considerablechoice in the terms i t offers and accepts. A major task ofpublic debtmanagement is tailoringgovernmentsecurities to fi t the needs ofal ltypes of lenders-individuals, depository institutions, pension andtrust funds, and businesses-that have funds available for differentperiods and have different earning and liquidity requirements.

Given it s ability to offer attractive terms to al l lenders, the federalgovernment plays a particularlysignificant role in th e debtmarketvis-a-vis the other borrowers with which it competes. Like any borrower,

Debt In the Belance Sheet of theOwned by

nomyOwed by

Houuholds 9.475 4.008 Households

4.837 Businesses

Businesses 2.499

Gov8Inments 3.J12

6286 Governments

Financial InstitutiollS

Rest of WorldTotll

1.&74

1,39925.429

9,239 financial Institutions

US Rest ofWorld25.429 Total

All figures Ir.1n biUions of doll8f'&. &timates .r . for Ylar-end, 19!1O.

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At everystage In the

growth ofdebt it has

been serioustyasserted by

Wise men thatbankruptcy

and rUinwere at hand

Yet still thedebt went

on growing;and still

bankruptcyand rUinwere as

remote asever

8

Who goath8 borrowinggoeth asorrowing.

BtnjaminPranklin

when the federal government enters the debt market to obtain newcredit, the increased demand has the potential to rai se the price ofcredit, i.e., th e general level of interest rates. Because the federalgovernment is generally willing to paywhatever rate is necessary toattract the funds it needs, and because i ts debt is very safe and liquid,lenders typica1lymeet the government's needs or demand for credit.Otherborrowers, however, generally must offer even more attractiveterms i f they want to attract credit. When borrowing by governmentcomprisesonly a smallportion ofthe total new debt desired, it s impacton interest rates is generally small. However, as th e governmentalportion of total borrowing increases, the potential impact on interestrates also increases, and private borrowers are forced to offer evenhigher rates i f they wish to obtain credi t. Concerns have sometimesbeenraised that a large volume offederalborrowing"crowds out" otherborrowingbecause private borrowers ar e unable to offer terms attract ive enough to obtain al l th e credit they desire.

Whilegovernmentdebtcan be attractive toall lenders, debts ofthemajor types offinancial institutions--especia1lycommercialbanksandsavings institutions-are particularly well suited to th e requirementsof small savers. These institutions generally stand ready to repayfunds leftwith them, in exact dollar amounts and immediately uponrequest. To be able to meet such demands, theymust invest part oftheir funds inassets that canbereadily sold at fairly stable prices. Thisusually means high-grade debt obligations of individuals, governments, and businesses.

Whileprudent investment policiesprovide the prime safeguard forfunds entrusted to these institutions, further protection is given bydistributing loans and investments over a wide range of borrowersandmaintaining an equitycushionin th e form ofcapital and reservesfor use in absorbing losses on any debt defaults.

Furthermore, because of th e vital function these institutionsperform as custodians of the public's money and savings, they ar esubject to supervision and support by various regulatory agencies,including the Federal Reserve. Regulatory supervision ofoperationshelps to ensure that depository institutions operate safely and soundly. In addition, some government agencies insure a large part ofthedeposit and share liabilities of these insti tutions. Insurance andguarantee programs are also provided for some types of loans thatthese and other financial institutionsmake. The ability to borrowfromFederal Reserve banks and Federal Home Loan banks can also be ofgreat importance to many depository institutions because i t canprovide a needed cushion during times of financial duress.

The chart on page 7 shows the distribution of debt among majorsectors ofou r domestic economy and theirnet interaction with foreignborrowers and investors.The unitswithineachsectorthatowe andowndebt are not identical, butmany businesses and individuals areincludedin bothgroups. A business, for example, oftenborrows togrant credit


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. . . - - - ~ - ..... - .L... . , ._ _

to customers. Mostpeoplewear two hats-one as owners and anotheras owers of debt. Anyone with a mortgage on his or her home andpossessing a savings account or sav ings bond occupies such a dualposition.

Although many consider going into debt the antithesis of thrift,without debtmany of the thrifty-and especially small savers-wouldbe hard pressed to find profitable outleta fortheirsavings. Moreover,unless these funds were spent by somebody, future income andsavingswould tend to decline. Abasic axiom ofeconomics is that eachdollar spent by one person is a dol lar of income for another. Anyamount of unused, unspent income (savings not invested) mustultimately reduce future income by at least that amount, and probably more since money changes hands many times while in th eeconomy_

In addition, debt traditionally provides the capital needed forlong-term growth. Through prudent use of debt, firms, individualsand governments can reap th e benefits of technological and infrastructure improvements, without first having to save th e funds orraise taxes significantly in a single year.

ec to r Ba l an c e Shee t sTotal debt owed must equal total debt owned, but this equality

does not apply for any individual or group. Some individuals andbusinesses owemore than others owe them, while in other cases, debtassets owned are larger than debts owed.

The gross and net debt positions of the five major sectors of theeconomy are shown in the charts onpages 12-16.'These "debtbalancesheets" show the estimated amounts ofdebt owned and owed by eachsector. These outstanding debts are arranged in subgroups indicating the sector from which debt assets or liabilities originated. Thiscross-classification by debtor-creditor group and the net debt position of each group are summarized in the table on page II . '

In total , debts owned and debts owed between units wi thin thesame sector are, of course, equal. Credi ts by one business to anotherare both assets and l iabilit ies to the business sector as a whole,although the owners and owers are different business units.I The basic source used In the balance sheets is the Row of Funds statistics for financial assets and liabilities.for year-end. 1900, as published by the Board of Governors of the Federal Reserve System. Some modificationsW1!re made in the Row ofFunds seclar classifications to sharpen the distinction between private and governmentsectors. for example. the Federal Reserve System, sponsored credIt agencies, federally-related mortgage pools,and state and local government employee retirement funds are grouped here with "government" rather thanwith -financial institutions." For a few types of debt insnumcnts, notably currency and checkable deposits andnade credit, the all seClGrs lGtal of deblassets and Iiabiities were not equal in the Row of FtJnds statistics. In suchc.ses, fin.ncial.ssetswere arbitrarily increased or decreased by the amounts necessaryto make financial assetsequalliabilities. In addition,those liabilitiesthathad notbeen allocated as assets in theAowofFunds statisticswereexcludedZThere are some credit transactions, particularly within the household sector and between households andbusinesses, that elude measurement However, these transactions are not believed to be large enough in theaggregate to seriously distort the picture presented here.

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10

The balance sheets show two major debtor groups-business andgovernment. The net debtor position ofbusiness is primarilydue to thefact thatmostbusiness assets areheld in the form ofplant, equipment,and inventories rather than financial assets. The net debtor positionof government reflects two factors:

Mostclaimson governmentare in th e form ofdebt becausemostpublic bodies cannot raise funds by issuing shares of stock.

Governments, unlike individualsand businesses,haveno choicebut to borrow to bridge th e gap between current receipts andexpenditures because they do not (and, because of statutorylimitations, generally cannot) save in anticipation of futurerequirements.

Despite their net debtor position, government units usually havefavorable credit ratings. Interest rates on Treasury securities arelower than on priva te debt, evidencing investor confidence in thefederal government's ability to pay debts as they come due. The lowinterest rates on debts issued by s tate and local governments reflectth e exempt s ta tu s o f interest on these securities with respect tofederal, and often state, income tax.

By far, the largestnet creditor group is thehousehold sector. In themid-1980s, th e r es t o f the world moved from a net debtor to a netcreditor position, but still accountsfor only a very small portion of th etotal net credit supplied in the U.S. economy.

Reflecting their role as financial intermediaries between saversand borrowers, banks and other financial institutions both own andowe a huge volume of debt and occupy a slight net debtor position.Com-mercial banks have been an important element in th e economiclife ofmost western countries fo r centuries. Over the past 50 years,savings institutions (savings and loans, savings banks , and creditunions) have also become an important part of the financial sector.And pension funds, which have benefitted from the widespread adoption of pension plans and increased contributions by employers andemployees, offerfurther opportunities to accumulate savings. Overall,the liabilities offinancial institutions (which ar e assets to th e accountholders) have risen dramatically.


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Deb t Asse t s and Liabi l i t ies - by Sec to r(billions of dollarsl Financial Rest 01Households Businesses GO'I'ern_nts Institutions WorldHousehekfsOwn 9.415 Owed by: 267 313 2.419 6.435 41

Owe'"

1.3:11Net 5.467BusineanOwn 2.499 Owed by: 141 706 151 835 666

Owed 41 2.608 >38

Gowem. .1JtSOwn 3,382 Owed by: 1,2fi7 472 955 526 162

Owe 1,2fi5 4764

financial InstitutionsOwn 8,674 Owed by: 2.333 2,608 2.2B5 1.:& 190Owed 2

_" 'Wor ldOwn 1,399 Owed by: 0 138 476 185

wed 4 02 190Net 340

Notn: Estimates based on Federal Rsserve Row of Funds data for year-end, 1990.Nonprofit institutions and personal trusts are included with households.Only nonfinancial businessesare included in businesses.TheF.deral Reserve, federally sponsored credit agencies,federally-related mortgage pools. and state andlocal government employee retirement funds are included with governments.Finaneisl institutions here include depositolY institutions lcommercial banks. savings and loan associations,savings banks, credit unions), finance companies, money market and ather mutual funds, real estate investment trusts, securities brokers and dealers, and ~ s u e r s of securitized credit obligations.Rest of world includes debt owed to and provided by U.S. holders onty-.

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"0 01 -the economy's largest lendergroup--ownwelloveronethird o fth e totaldebtassetsoutstanding. Much o fth e householdowneddebtishighly liquid, beinginth e fiJrmofcurrency, checkingandsavingsaccountsa tbanksand savingsinstitutions,a n d shares in moneymarket mutual funds. Another signirwantportion is held inreserves in pension and insurance funds. Most householdobligations, however,arefixed, Iongterm debts-principally residential mortgages. T he strong ne t creditorposition o fhouseholds is reflected in theirnet worth, which alsoencompassesa hugeaggregateoffixedassetsanddurablegoods.

Deb t In th e Hou eh a lan ca S heeDebt Households Own Debt Households Ow .

Owed by Other Households

Owed by Businesses(bonds, mortgages, and commercial paper) 313 I loans)

1fI7 Owed to Other Households

141 Owed to Businesses!instalment credit. cherge accounlJ, 800 personalOwedbyG__

(savings bonds and other fadenllsecurities, state and loul securities.pension and il'lSUIlInC8 reserves.and currency)

2.419D 1.257 Owed to Governmentslmortgagel and other lollts)Owed by Financial Institutions 6,435(deposits at commerciel banks, savingsbanks. savings and loans. andcredit umollS; privets parwoR andinsuralJCa raserves; 1tlO'""f maftetand other mutual fund shares;and other Ilabilitiesl

Owed by the Rest of ti l. World 41L

2..333 Owed to Ananciallnstitutionsjconsumer credit. mortgages. other bankloans, and insurance policy loans)

o Owed to the Rest of the Worldr.. .1Debt Ass... 9.475Nondebt Assets lOUtXX(busmess equities. tangible property.and real estale) r.. .1Ass. . .4.008 Totalliabilmes-.xx""",,=- Net Worth

Total Liabilities and NetWorth

12

All figures are in billions of dollars. Estimates are for year-end, 199J.


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takenas agroup-arenetdebtors, that is, theyowe rrwre debt than theyown. &.qides tradepayables (one typeofdebtbusinesBe$oweem:hother), theirlargestliabilities consistoflcng-term bonds and rrwrtgages on business property-whichtncllUks farms, offices, and apartment buildings. Most businessdebtsareowed torutaneial institutions. Payments due from households and other businesses forgoods and services make up about one-thirdofthe debt businesses own. Anotherthird is in the formofdeposits, insurance receivables,andotherliabilitiesoffinancialinstitutions. Unlike householdassets, businessassetsarenot usually in theform ofrrwneyclaims. Rnther, theyare infi.xlassetssuchasplant, equipmentand inuentory.Thcseare balanced in partby debt, butalso byownerequity.

Oe t In th e Bu . l ne . . a lance hee t

0_ by Households 141linltlllmerd c"l l , chargl I(CDUIU, pwsonalloans)'==:::: '

Debt Businesses Owe

313 Owed to Households(bonds. mortgages. and co",mercial papIn

Owed by Other Businessesfmd. c r ' " mortgages, and comlMraal .-per)

O w e d b y G ~ t s(led....ls.cuntI.. . state and loull8curtties,currllncv. nd government coruaet payable!l

Owed by Financial Institutions1 . ~ U It banks el\d sll'tings Inslitutions.IwnMI ~ b ' e s , and om.. hbilitiasl

Owed by tho R. . . of.flo World4r!irKt abnlied. Upostts.and aIher borrowing)Talal Dobl AssetsN_btAssets

ItIIlsiM:u.. and ~ w p r H f I l . hirml.nd,lnv.rcor.es. "ully in .... OOlllMtssast

106,-I151

835o'-----_I

2.4!1llOODDl

706 Owed to Other Businesseslll'1ld. credit. mortgages, .nd commercI.1 p.-par) 4"73 Owed to Governments

Ibonds. mortgages. tax payables, and ad_ adnnonl2...J.. , Owed hi fin.neilll Institutions

lbonds, monlliges, other benll: loans, financecomplny lOins. and om. . h.bIIltlls)Owed to the Rest of tho World(direct i......estrDlnt in U_S_. borwis. loaM.and trade crlllitl

_ - - A . . ~ m l 1 Taul LiabilitiesXXXJlX Net Worth

ToIIil Assets TN I Liabilities and NetWorthAlfigur Ira iA billions of dobra. E.s*niltes ar . for Y'lr-end. 1990

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Governmen -like businesses-had liabilities outstandingat the endo f1990 thatexceededdebtclaimsonothersectorsbyasubstantialrrw.rgin. Thefederaldebtdwarfsstateand localdebts, but includeslargeamounts offederalobligationsheldby federalagencies, FederalReservebanks, and stateand localgovernment units. Aside fromthese intragovemmental items, thebiggestshareoffederaldebt (includingcurrencyand savings bonds) is held by households. One rea son governmentshavea heavydebtorposition is that claimson themarealmost entirely in the formofdebt--virtuaUynone is inequity. Balancing thisdebton theassetsideis publicpropertyand many intangible assets classed broadly under th e general welfare, but mostimportant, theauthority to levy taxes.

Deb t in th e Gove rnmen t Balance Shee t

Owed by Households(mortgagls end otner loans)

Owed by Businesses(bonds, mortgages, to : payabhts. endother Idvancesl

1,2$7D472lc

2.419 Owed to Households(savings bonds and other f.deral securities,state and local securities, pension and insurancereserves. end currency!

Owed to Businesses151 tledenl securities,. state and local securities,currency. and lIovemme!1l: cortract payablesl

Owed by Other GnemlAef1t UnitsIfederal securities held by the Federal Reserve,sponsored 8genCleJ, and state end local unrts;Slate Ind toeal securities held bv stahl and localunits; currency; and ather liabWiliesl

95!iD r !155 Owed to Other Government Units(federal securities held by the F1ldel1ll Reserve.spon!ored IIgencies, lIod state end local units;stete and local securitIes held by State and localunits; currency; end otller liabilitiestOwed by Fin.ncie'lnstitutions(depOlits in banks. 1:Bx payable!. Bodather borrowingsl

Owed by the Rest of the World1"",1 DebtAss. . .Nondebt Assets

(public property, nalional defense,taxing authority, and freedoml

52&,-------I162

JUllUlX

2.215 Owed to Financial Institutions(federal securities. slate and local securitlas.reserves al the Federal Reserve, currency, andother liabilitiesl

476 Owed to the Rest of theWorld

6.216 lota'liabilitiesXXX,Xll Net Worth

Total Assets lotalliabilities and Net Worth

..

AJI figureS" ar . in billions of dollars. Estimates are for year-end, 1990 .


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nanc I ......unlike the othermajor sectors-hold relativelyfew assetsthotare not financial claimsonothers. Also, their liabilitiesareverylargecomparedwith theirne tworth. Theirunique positionasintermediariesbetweensaversand usersof funds is shown in the balance sheet. More than two-thirds of their liabilities are tohouseholds, bu t theyalso hold the working balances ofbusinesses andgovernments. The funds these institutions "borrow'arefairlyevenlydistributedincreditextendedto thehousehold, business,andgovernment sectors. Becauseprofitsoffinancial institutionsarederivedlargelyfrom theircreditservices, they try to keep asfully investedas pOBBible in thedebt assetsofothers.

Deb t in th e Financial Ins t i tu t ion Balanca Shae tDebt financiallnstiMions Own Debt Financial Institutions Ow.

6.435 Owed to Households(deposits at commercill benks, savings banD,savings and loans, and credit unions; privata pension and insurance reserves; money martet Indother mutuel fund share!;; end other liabilitiesl

Owed by Householdslconsumer credit. mortgllles, otherbenk loans, end insuruCl!l policy 1000ns)

Owed by Businesseslbonds, mortglges, other bank loans.Itoenca company loans, and other liabilities)

Owed by GowemmeJrts(tedel'lll SKURlieS. state and IoCiI UCUntIU.reserves lit the Fed.ntl Reserve, ctlI'T8f1CV. Indother liabilitiesl

Owed by Other financial Institutions

Owed by the R.st of the World

2.333Do2.285D1,2S1

D190

835

526

1.258

Institutions

Owed to Businesses(deposits It banks end sevtngs institutions,insurance payables. Ind odHlr- liabilitIes)

Owed to Governments(deposits in benks. tllll payables, andolher borrowings)Owed to Other Financial

TotIIl Debt AssetsNondebt Assets(plant, real estale, and business equitiesl

l674lOOOOl

185 Owed to the Rest of the World9,239 Totalliabilities

DUX Net WorthTotitl liabilities and NetWorth

All figures are in billions of dollars, Estimates are for year-end, 1990.16


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The rest o fthe rid-with the expansionofinternationalcommerce-has liabilitiesto thedomesticeconomy thathave increasedsigni(ccantlyin recentdecades. Asinternationaltrade hasgrown, so toohas the useofdebt tofinance thatactivityandthe investmentneeded to support it. AlrrUJst two-thirdsofthe debt owed by foreignentities isowed to the businesssector,primarily forbusiness investmentabroad,withthe balancelargelyrelatedtotradeactivities. Gfthedomestic debtownedby the restoftheworld,government securitiesrepresentaboutone-third. A much largerportionisowedbydomesticfirms,againrefkctingtheglobalizationofbusinessandbusinessfinance_

Deb t in the o he Wor ld Balance with tDebt 1ho _ 01 the World Owns

Owed by HouseholdsOwed by Businesses(direct ,"vestment in U,S., bonds, loans,and trade credit)

Owed by GovernmentsIfederal securities and depositsat the Federal Reserve)

Tobll U.S. Debt Assetslithe.- A s _

o138D416D185 I

1,399.."""

Debt1ho _ 01 the World Ow..41 Owed to Households

666 Owed to Businesses(direct investmel1: abroad,deposits, and other borroWing)

162 Owed to Governments

190 Owed to Financial Institutionsl .--

1,059 Total Liabilities to U.S.xxxn Other Liabilities and Net Worth

rotalAs:iets Total liabilities and Net Worth

18

All figures are in billions of dollars. Estimates 8re for yearend. 1990.


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...... a t ransf er func ti onThe continuing productionofmore and better goods and services

is characteristic of an expanding economy. A great amoun t ofinvestment in new equipment and facilities is required fo r thisexpansion. People also investwhen they purchasehouses and otherdurable goods, and governments invest on behalfofthe public in suchfacilities as high-ways,water systems, and schools. Thefunds for thisnew investment come mainly from savings.

Sometimes the saverand investor are the same-aswhen a personuses his or her savings to pay for construction ofa house or a companyf"mances plantand equipmentwith retained earuings. Often, however , businesses and individuals buying long-lived goods use credit tocover at least part oftheir purchases. Because the accumulation ofpersonal savings and the expendi tu re of these funds are largelyseparate processes performed by different people or groups, a convenient way of transferring funds from savers to users is necessary.

While some people use their savings to buy real estate, durablegoods, or corporate stock, most people use at l ea st p ar t of theirsavings to acquire debt assets ofone kind or another. Theymay lenddirectly t o o ther individuals o r they may purchase governmen t o rbusiness securities,but a large par tofpersonal savings f"mds i ts wayinto productive investment through financial institutions.

Since both individual savers and financial intermediaries showstrong preferences fo r debt assets, people who need funds often findi t easier and cheaper to acquire them by borrowing than by issuingcapital stock. The growth in debt, therefore, is an essential part ofeconomic growth, and a large part ofsavings is put to productive usethrough the lender-borrower channel.

There are never enough savings to satisfY everyone who wouldlike to use credi t. The available supply is rationed through interestrates-the price of credit. With allowance fo r the differences ininterest rates due to varying degrees ofrisk, increased competitionfo r funds can raise interest rates beyond the levels that conservativeborrowers will payor inefficient producers can afford to pay (in th elongrun). This tends to directsavings and thereal resources they cancommand into their most productive uses.

The flow ofsavings and the way these funds re turn to the incomestream through creationofdebt are shown in th e diagram on page 18.If any channel is cu t off, future income is reduced.

.....-- - -'- - rovldes let us all Debt isbe happy and the prolificlive within mother ofour means, folly andeven if we crime .. .

have toborrow the Btlljaminmoney to D i s r l l ~ / i

do it.

ArtmJlIJWard

.. .. .. a Dl.oney c r eat ion func t ionDebt doesmore than simply transfer idle funds towhere they can

be put to use-merely reshuffling existing funds in the form of credit.

17


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18

Sav ings and Dab t in th e Income Stream

business andhousehold incomeperiod I

taxes savings spending

Inew reserves from financial direct

central bank savings investment

I I- equities

deposits andshares ofnancial institution

CREDITI =I D,BL- - 1government business householdspending spending spending

total spending

business andhouseholdincomen . ' ; n . II


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It also provides a means ofcreatingentirelynewfunds-funds neededto f inance t he g reat er volume of new projects and spending thatcontribute to economic growth.

Again, checkable deposits in commercialbanks and savings institutions are debts- liabil it ies of these depository institutions to theirdepositors. But checkable deposits are also th e money used for mostexpenditures. How do these deposit liabilities arise?

For an individual institution, they arise typically when a depositorbrings in currencyorchecks drawnonotherinstitutions. The depositor'sbalance rises, but the currency he orshe holds or th e deposits someoneelse holds are reduced a corresponding amount. The public's totalmoney supply i s no t changed.

But a depositor's balance also riseswhen the depository institutionextends credit-eitherbygrantinga loan to orbuying securities from thedepositor. In exchange for the note or security, th e lending or investinginstitution credits th e depositor's account or gives a check that can bedeposited at yet anotherdepository institution. In this case, no one elseloses a deposit. The totalofcurrency and checkable deposits-the moneysupply-is increased. New money has been brought into existence byexpansionofdepository institution credit. Suchnewlycreatedfundsarein addition to funds that all financial institutions provide in theiroperations as intermediaries between savers and users of savings.

But individual depository ins ti tut ions cannot expand credit andcreate deposits without limit. Furthermore, most of the deposits theycreate are soon transferred to other institutions. A deposit createdthrough lending is a debt that has to be paid on demand of th e depositor, just th e same as th e debt arising f rom a customer's deposit ofchecksor currency in a bank. By writing checks, the borrower can spend th edeposit acquired by borrowing. The recipients of these checks depositthemin theirdepository institutions. In turn , these checks are presented for payment to th e institution onwhich they are drawn. As a result,th e newly created deposit can be shifted out of th e originating institution, but it remains pa r t o f the money supply unti l the debt is repaid.

No effort ismade here to give a detailed explanation ofthe creationofmoney through the expansion of deposits and depository institutioncredit.' For p re sent purposes, it is enough to point out that theseinstitutions can make additional loans and investments, and therebyincrease checkable deposit money, to t he ext en t that th ey h ave t herequired amoun t o f reserves against th e increased deposits. Theamoun t o f reserves, in turn, is controlled by t he Feder al ReserveSystem-the central bank of the United States.

SFor a description of mis process, see .....MDIM, MtlC1I6,,;u:A WD1HDlI'k OIIS."k RaefWle"tI D ~ p " . i tExp.aitI", avalable on request from the PtJblic Information Center, federal Reserve Bank of Chicago.

Anationaldebt. if it

is notexceSSive,will be to usa nationalblessing

AlexanderHamilton

At the heartof our nationalfinances isa simple.inescapablefact. . that ourgovernment-any govern-ment-like individualsand families-cannot spendand continueto spend morethan they takein withoutinviting disaster.

ClarmrtConnon

'9


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Debt end Economic Activity in the U.S.billions of dollarsSO.lDl

billions of dollars50,(0)

ratio x.1e

10,(0)5,(0)

1,(0)500

100

so ..

10.lDl5,(0)

1,(0)

500

Gross Dcnestic Product

100

SO

10

ratio of debt to GOP5

ratio of debt to GOP5

4

3

2'!II'70'50'SO'40'30'20'10

2 l u . w w . W . w . w . ~ w . w . l l . u . . u . l l W . I . w w . w l J J U J . W J u . J . , w . , L W . J J . 1 . L . w L w i l i w = J1900

3

4

.......


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...... a st iDlulus to growthThe cha rt on page 20 shows th e general relationship between

long-term trends in totaldebt andthe valueofthe nation's productionofgoods and services, asmeasured by gross domestic product.- Thesemeasures generallyhavemoved upward since the turn ofthe century,but neitherhas grown steadily. Both debt and production havemademajor upswings in wartime, but the only period in which there wassignificant liquidation of debt was in th e depressed 1930s.

People are generally more willing to incur debt-to buy housesand otherbig-ticket consumer goods-when incomes and employmentare rising. And businesses find it more profitable to borrow whenover-all income and expenditures are rising. The spending this newcredit generatesmay, in turn, stimulate further increases in overalleco-nomic activity.

But growth ofdebt is not always matched by general economicgrowth over short periods. Debt growth, in and of i tself, does no tgenerate economic growth, although it can be a contributing factor.In the decade ending in 1990, the dollar volume ofdebt rose 168 percent, comparedwith 104 percent for th e total value ofthe goods andservices produced.

Short-run differences in growth rates result partly from changesi n int eres t r at es and business expectations of such changes duringth e business cycle. Because interest rates tend to fall in times of slowactivity and light demand for credit, some businesses plan to borrowfunds for long-term expansion in such periods to get the benefit oflower interest costs. Even more important is th e faster expansion ofgovernment debt in times when expenditures tend to rise andrevenues fall. Although these factorsholddown th e cyclicalvariationin th e volume of total debt, it is clear that growth ofdebt and growthof th e economy are closely associsted.

evels and Cred i t FlowsWith th e aggregate indebtedness of th e economy at more than

$25 trillion, it is reassuring to note that this tremendous debt i s nota single ever-growing account that will come due someday and bepayable in a lump sum. Rather, it represents a snapshot at anyonetime capturing millions of individual debts in various s tag es ofrepayment. Any realistic appraisal of th e problems of carrying thisdebtmust take into account it s rate of turnover, its distribution over

The Intal debt measure used Ilere is more encompassing than the total domestic nonfinancial debt measureemphasized by the Federal Reserve in recent years. It can be argued thatthe inclusion here of money-type debt.other intermediated debt, and non-creditmarket debt is not appropriate in the comparison of debt with economicllCti..-ity, in part because itinvolves double counting of the credies that ftowthroogh financial instibJtions from saversto users. Although the inclusion of Ihese liabilities raises the level of debt to income, it has little effect on changesin that ratio oyer time.21


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Iw;sh itNo nation were possibleou;htto to obtain an

bowithout adc:hnonalad bt article to our

Constitu-T"'-u lionP#"" I mean an

article takl1gfrom the federalgovernmentthe power ofborrowing

Tho",aJIt//m

th e population, it s relation to the totalvolumeofbusiness beingcarriedon, and th e flow of repayments compared with the incomes of debtors.And th e purpose for incurring the debtmust also be considered sincedebt that is used for investmentcangeneratefurtherincome and imposeless ofa burden than debt used for immediate consumption.

There ar e no statistics available to show the gross amount oflendingand repayment transactions related to th e aggregateamountofdebtoutstanding. Turnover-the ratio of repayments to total debt during agivenperiod-ismuchhigher,ofcourse, for short-termdebt than forlong-term debt. Thus, turnoverofconsumercreditwouldbehigher than thatfor home mortgage credit, and within consumer credit categories,turnover of revolving credit such as credit cards likelywould be higherthan for automobile credit. Home mortgages, which account for overtwo-thirds of all debt owed by households, are repaid, on average, inabout sevenand a halfyears, through regular amortizationofmortgageloans, sales ofhomes, or refinancing.

Relative to earnings,businessdebt is fa r larger than personaldebt.It is also more evenly divided between long-term and short-termobligations. Moreover, about one-third of th e short-term indebtednessof business represents trade payables, which are normally paid in amonth or two and, therefore, turn over several times eachyear. Bankloans, which account for about another third, can stretch out overseveral years, especially when allowances are made for renewals, butmany new bank loans to business are made for a few months at a timeto carry inventory.

Debt is being continually created and repaid in the governmentsector too. Governments, in addition to borrowing to cover th e currentexcess ofexpenditures over revenues, replacematuring securities thatare not being ret ired. Some government secur it ies are payable aftersuch short periods that they have to be refinanced severnl times a year.

The total flow ofcredit from lenders to borrowers in a single yearisverysizable, andthe amountoutstandingatany timerepresentsthe netaccumulationofdebtover th e country's entire history. Furthermore, asa result ofsales ofexisting assets, real and financial, sizable shifts arealways beingmade between debtors and holders ofdebt assets .

n

IIIII.a n g e r sEmphasis to this point has been on the economic functions performed by debt and the nature ofdebtor-ereditorrelationships. Does

th e important role ofdebt in the economy thenj ustify discardingal l thetraditional aversion to incurring debt? I f that question could beanswered affirmatively, debt would present no real paradox. Butdebt's "other face" is not illusory: debt can be a source of difficulty.


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The desire ofmany people "toowe no man" probably stems largelyfrom a reluctance to commit a part offuture income in advance. Thereis always the possibility that a debtor's future income will no t beenough tomeethis orher financial needs, includingrepayment ofdebtand interest. This risk is verygreat in the minds ofmany people. Butbeyond their justifiable reluctance to assume fixed obligations in theface ofan uncertainfuture, somepeoplefeel that any sort ofindebtedness is a sign of living beyond one's means.

On theotherhand, there are peoplewho borrowwithouthesitationandwho purchase asmuch on time" as their creditorswill allow. Suchpeopleprobablyhave very optimistic expectations offuture income anda strong desire for current, as contrasted with future, consumption.

Between these ext remes are l arge numbers of individuals andbusinesses that incur debts easily within their ability to repay, withth e expectation that by borrowing they will havegreater satisfactionand/or earning power in the long run. They are witnesses to th eeconomic fact tha t, when prudently undertaken, debt is not a aign ofthriftlessness. Fewwould argue that allwould-be homeownersshouldaccumulate the full price of their homes in advance. By graduallyincreasing equity in a house through mortgage payments, a buyeroften savesmore than i fthe debthad not been incurred. As mentionedearlier, a person or business may borrow to finance purchases inpreference to using savings held in the form of financial asse ts or inpreference to paying rent for th e use of others' propertY.

Clearly, however, the amountofdebtan individual orbusiness cancarrywithout riskingfuture embarraasment, loss, or even bankruptcymaybe less than some borrowers realize. For individual consumers inparticular, th e ease of obtaining credit has often le d to repaymentcommitments hazardously large in relation to income and withoutenough allowance foremergenciea. Trouble developswhen th e expecta tions of the borrower and the lender have been overly optimistic.

I IAmajor source ofconfusion about th e dangers ofdebt is th e failure

to distinguish betweenwhat people and businesses can do individuallyandwhat all consumers or al l businesses, or even th e whole economy,can do in th e aggregate.

While individual debtsmust be repaid, there is no dogmatic reasonwhy th e aggregate of all debts outstanding should be reduced. Thecomposition of this aggregate is constantly changing. New debts arecontractedand old onesrepaid. As the economy grows andmore savingsare generatedand more funds are required to finance new businessesand expand existingbusinesses, th e total debtmustbeexpected to rise.

23


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As has already been shown, savers and users offunds at anyone timeare to a subataotialextent differentpeople, and i fsavings are no t used,th e total flow of expenditures and income will tend to decline.

The principal danger of overall growth in debt is that new moneycreatedthrough th e expansionofdepository institutioncreditwill touchoff price inflation by stimulating too much spending. Over time, amoderatelyrisingmoney supplyis usuallyconsistentwith a rising levelof economic activity and full employment for a growing population.Some expansion in deb t and money is necessary for th e full use ofresources and satisfactory economic growth. Butwhen th e economy isalreadyworkingat capacity,or near that, additionalmoneyinjectedintoth e spending streammay simply drive prices up , setting th e stage forsubeequentrecessionandunemployment.TheFederalReserveSystemis responsible for providing enough reserves to support rea-sonablecredit needs, but to avoid expansion at a rate that would cause priceinflation and th e subsequent economic problems.

Cyclical variations in private expenditures and private debt areoffilet to some extent by concurrent changes in publ ic debt--

In periods ofprosperity, privatedebttends to growmore rapidly. Atsuch times, higher incomes can be expected to bring tax receipts morein linewith government spending, thus reducing the rate ofgrowth ofgovernmentdebtorreducingth e need for furtherborrowingcompletely.Whenpersonalandbusinesscredit demands are especiallystrong, withprivate debt increasing rapidly and prices tending to rise, th e government should operatewith a surplus and reduce federal debt.

Potential inflation then, not insolvency, is th e principal dangerassociated with public debt. G iven its extensive powers to tax andcreate money, the federal government can always meet i ts interestobligations, refinance maturing securities, and even, when consistent with overall economic objectives as well as social and politicalchoices, reduce its level oftotal indebtedness.

r-' - - - e b t

..

The burden ofdebt has been given a lo t ofat tention through theyears. Ye t the nature of the debtburden is still not clear. People canthink of their indebtedness as a twofold b u r d e ~ t h e debt must be


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paid at maturity and interest charges must be paid on schedule.Repaymentmay turnout to beburdensomeeitherbecauseincome fallsshortofexpectationsorbecause th e productor service purchasedwiththe borrowed funds is less rewarding than expected (which, of course,could be equally true of cash purchases). The uncertainty ofwhetherthe benefitswill eventually outweigh th e costs contributes heavily tothe idea that debt involves a burden.

What about theburden of th e federaldebt? As th e economy grows,the to ta l amoun t o f public debt will probably continue to increase.Existingdebtwill be refinancedover and over again, and itwill alwaysbe ownedbythosewhowanttoholdgovernmentsecuritiesamongtheirfinancial a sset s. The problem, therefore, centers largely on interestpayments. But again, burden is hard to define.

It has been suggested that internallyheld public debt involves nonet burden on the economy because "we owe it to ourselves." Taxescollected to cover interest payments are equal to interest receipts ofdebtholders. However, an increasingamountofthe publicdebtisheldoutside th e U.S. And even i f al l public deb t were held only by U.S.citizens and firms, al l taxpayers are no t receivers ofinterest in equaldegree. Somehold government debt,somedo not-althoughmany holdit indirectly through financial intermediaries. Paying interest fromtax receipts entails transfers of income that may havewidely varyingimpac ts on some people and institutions, while also affecting totalexpenditures and aggregate income in the economy, as well as theflows of income between national economies.

Presumably, th e benefitsofany public expenditure are realizedbyth e public as a whole, whether Imanced by current taxes or by debt.Whether taxes or interest costs are burdensome depends basicallyonthewisdom ofth e expenditures andany inflationaryeffects of th e waytheywere financed. Presentand future taxpayersmay receive greaterincomes i f an increase in government debt has benefitted businessactivity. They may be worse off, however, i f government debt isincreased to finance projects thatwaste real resourcesor i f th e debt isincreased in away that results in inflationaryprice increases. But th econtroversy over the burden of th e debt has not yet produced preciseanswers about th e impact ofinterest cost.

Debt-public and private-is here to stay. It plays an essential rolein economic processes. Which ofi ts two faces appears predominantdepends largelyonthe state ofbusineasconditions. I fdebtgrows eithertoo slowly or too rapidly, the consequences are bad. Whatis required is not the abolition of debt, but it s p rudent use andintelligentmanagement.

Small debts The creditorare like hath a better

small shots; memory thanthey ranle on the debtor.

every side andcan scarcely jamube escaped H ( ) W ~ I I

without awound, great

debts arelike cannon,of loud noise

but littledanger.

SamlltljohnJon

25


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The Fede,al Reserve Bank of Chicago offe,s8 vanety of materials on money and banking,the financial system, the economy, consumercredit. and related topics. Information onthese materials is available by contacting:Public Inlormation CantBrFedaralRasarva SantofChIcagoPO Sox834ChIcago. I l 606!JO-QIJ34312/322-5111

FEDERAL RESERVE BANKOF CHICAGO

TwoFacesofDebt

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