Association is not necessarily causation. You'll note that in that graph the recession invariably precedes the change in govt. vs. private "balance" (whatever that is from this unsourced graph) . Looks more to me like the recession is causing the supposed imbalance, not the other way around. Recessions usually come at the end of an expansion, so when the "business cycle" causes private sector economic activity to contract you would expect to see private sector balances contract as well. Further, recessions are more than "slowdowns" , they are contractions, and some of them cause little noticeable "instability and defaults", case in point the mini-recession of 2001.