Using only national debt does not complete the picture. We need personal and corp debt also. It is personal debt that is exploding not goverment debt. I am not a fan of either, but the problamtic debt is personal. Also look at the savings rate for the last 60 years on a graph.

I always stop by willisms for a place to keep the mind moving.

Hi Rasco,

Why would you need that?

I know that personal debt is always a problem, but why mention that in relation to the figure above?

The point of the article is that we are not in the crisis that so many wring their hands over. We can handle difficult times, if they come, is the idea proffered. Yet citizens of this country have less personal savings than ever before in history. If we should have a 1980's style recession will people be able to keep paying their mortgage let alone their credit card debt? Our assets are plenty to cover our liabilities is the idea offered. Isn't it good practice to add up all liabilities when we make a comparison? Check this graph http://research.stlouisfed.org/fred2/series/PSAVERT/112
One more site http://www.bea.gov/bea/dn/nipaweb/Nipa-Frb.asp

The sites show graphs of savings rates that directly illustrate our abilities to handle future problems. Remember the markets at 9-11 and the industries hurt. What will a regular recession do to our ability to pay debts both personal and national?

Now the clincher: the personal debt rate http://research.stlouisfed.org/fred2/series/CMDEBT/97/Max

When ever you see any kind of graph that starts heading toward the sky with a contracting curve like 1999 DJIA and 2005-2006 large city property valuations, you know we are headed toward a correction of some magnitude. Personal debt seems to be telling us that are assets are not covered well.

Hi Rasco,

Yes, those numbers are telling indeed. The first thing I thought of when we see the personal debt rate, and the time frame when it really starts to climb, is the the credit card industry. I mean, it seems fairly easy now a days for the average American to carry more and more debt in the form of revolving balances - and pay lower and lower minimums, and as a result they (we) carry higher balances.

In addition to that, it's much more convenient for folks to use these lines of credit as a fallback mechanism instead of savings during shortcomings - I see it all the time with friends and family, and it's happened to me. We've since dug ourselves out and chalked it up to an important lesson learned.

Another thing that I thought when seeing this is the housing market, and how it's grown significantly in recent years. Mortgage companies are growing like wild fire, and a friend of mine that's in the business tells me all the time about how they are making it easier for the homeowner to borrow against any equity that they may have built up with new options.

I can see the weight of that in relation to the chart, nice discussion.

One man's debt is another man's consumer spending. Personal debt produces demand for consumer goods, which in turn creates jobs which in turn will eventually have to compete and pay more and more for workers which will drive up salaries and so on.

But it must happen at a measured pace and it must happen responsibly. I have to keep in mind that home equity is not really my money. It does not exist. There is no such thing. There is simply the ability to obtain more debt at a lower interest rate because it is "secured" as opposed to unsecured. Namely, that means if I borrow against it, they take my house.

I am leveraging my home equity to start a business and this is a valid thing to spend it on. Crack and Hookers probably is not. One or the other, maybe, but not both. The debt industry in this country encourages increased borrowing because that is their business, but honestly, saving does not make a hell of a lot of sense with the rate of return barely at the rate of inflation on savings accounts. The only choice you have to make a good financial decision is to leverage yourself and make good investments, or to reduce your debtload.

Let's look on the bright side of debt though--access to capital is what allows me to start a business and employ folks. If not for the credit card companies and mortgage companies, I would have to save for 10 years or gut my 401k to start a business. Home appreciation is allowing me to borrow against my house and start my own company. But to others, home equity is an excuse to buy a 1 Ton 4x4 F-350 Supercab Deisel and lift it and put 35" tires on it. I see lots of them in my neighborhood pulling brand new boats. Home equity does not belong to you until you sell your home and replace it.