Debt to Gross Domestic Product (GDP) ratio is a measure of leverage. Higher the measure higher is the risk for non-repayment. In the US, debt to GDP ratio stood at 0.93 times for the first quarter. This is lowest level ever since fourth quarter of 2005. These are ominous signs for US. Declining debt to GDP ratio means the reliance of an average American on debt has decreased. It could also mean that the overall net worth of the residents has increased. In the case of US, both of these have happened. The household net worth of average American has increased by about US$ 3 trillion due to increase in housing and stock prices. At the same time household debt figure is declining due to fall in mortgage debt requirement. It may be noted that mortgage debt has been declining in the 18 of last 20 quarters. Nonetheless, consumer debt and corporate debt has been increasing. However, the fall has more than offset the rise in the other two areas here.

But what does a falling debt to GDP ratio actually signify for US? A declining ratio de-facto indicates that economic activity has increased. And reliance on debt has decreased. Low reliance on debt signals that spending habits have witnessed a change. Increasing GDP is more due to the fiscal and monetary policy tools undertaken by the government. However, it would be interesting to see if this trend continues in the future as well.