The private sector continued to reduce its debt in the first quarter, while the government picked up the slack, and then some. Overall, debt rose at a 3.5% annualized rate, according to the Federal Reserve's Flow of Funds report. But all of that growth was thanks to the government. The following chart tells the story:

As you can see, households (purple line) continued to reduce their debt last quarter by 2.4%. This marked their seventh straight quarter of shrinking debt. Businesses (gold line), however, are beginning to reverse their debt reduction trend. After a four-quarter slide, debt was virtually unchanged in the first quarter. This appears to indicate that businesses are having more luck rolling over their debt this year.

And then, there's the government. State and local governments (green line) increased their debt burden by 4.3%. This was their fifth-straight quarterly increase, which has been pretty stable in the 4% to 5% growth range over that period. The federal government (red line) remains the biggest borrower. Although its debt growth at 18.5% isn't as much as what we saw in late 2008, it's still pretty huge. It's more than last month's 12.6% rise. And remember, this is debt growth, so each quarter total debt has grown to add to the huge late-2008 deficits.