Check this chart showing the U.S. debt to GDP ratio. As of June 30, 2010, the most recent data available, total household, business, and government debt stood at $52.1 trillion, a slight drop from the $52.3 trillion at the end of last year. Debt stands at a near-record 357 percent of gross domestic product, and more than double the 1980 debt ratio, and – ominously – well above the previous record 264 percent set early in the Great Depression.
Over the past three decades, Americans have become willing to absorb strikingly higher financial risk in their pursuit of lifestyles beyond our means. Enveloping materialism and the death of delayed gratification are at the root of our debt binge. Starting in almost exactly 1980, our debt growth abruptly accelerated, saddling today’s America with the most highly leveraged major economy in world history.
In the early 2000s—when the handwriting was already boldfaced on the wall—we staved off a deflationary pop in the debt bubble only with another massive new surge in borrowing. Between then and mid-2007, zero percent auto financing, 100 percent loan-to-value mortgages, and high-risk lending to people of blatantly marginal creditworthiness were the tottering props under our debt-fueled consumer economy. To keep the music playing after the exhausted consumer began shedding debt in 2008, the Federal Reserve Board went into overdrive printing money to buy mortgages and government debt. We will become sober, promises the Fed, but not this year.
To restore U.S. debt to manageable levels, we’d need to reduce it by about one-third to its 1990 ratio.
