Household Debt to GDP Ratio = 100%

Posted by Mike P. Sinn on May 2, 2009

Tags: debt, economy, government spending, national debt

The Household Debt to GDP Ratio is 100%. That means the average family has as much debt (mortgages, auto loans, credit card debt) as they earn in a year.

For a most of the 20th century, the Household Debt to GDP Ratio’s been under 50%. The last time it reached 100% was 1929. Note the twin peaks in following graph.

This suggests that our current crisis is about something much simpler than credit default swaps, derivatives, or toxic assets. It might be that the significant increase in the standard of living we’ve seen over the past twenty five years was not brought about by an increase in the median wage. It’s been brought about by an increase in the median household debt.

We can’t just keep borrowing more and more forever and paying it back is painful.

Here’s a link to an excellent easy-to-understand radio program on the whole banking mess:
http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1285

Should we trust our ideological guts to make our public policy decisions for us? Or should we examine the relevant empirical data and use reason to come up with the most effective solution to the problems we face? Truth, Damn Truth, and Statistics crunches the numbers to help you make reasoned decisions on the most important political decisions of our time.

Thane EichenauerMay 2nd, 2009 at 7:19 pm

I like the graph and the commentary. I’ll tell you that my personal debt to GDP has been slowly ticking down for more than a year. My goal now is to get government borrowing and spending to do likewise. A friend of mine is 2/3′rd of the way through Thomas E. Woods, Jr.’s book Meltdown, A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse . I have faith that the good guys are still plugging at it and making some progress with Ron Paul’s HR 1207 Federal Reserve Transparency Act of 2009 (112 cosponsors so far!)

Michael SinnMay 5th, 2009 at 8:56 pm

Thanks, Thane. I’m glad your ratio’s going down. I’m working on that myself.

I really have to read that book. There’s a good Lew Rockwell podcast with him that you should check out.

HR 1207 Federal Reserve Transparency Act of 2009 is up to 124 co-sponsors as of today!

CederashMay 23rd, 2009 at 12:19 pm

Сенкс. Интересно, и вообще полезный у Вас блог

FerinannndMay 24th, 2009 at 10:49 am

Чтобы ничего не делать, надо это хорошо уметь. Ага? Еще что нибуть по этой теме охото.

AverteddMay 26th, 2009 at 12:11 am

Отлично написано. Позитива конечно не хватает, но читал на одном дыхании

YorikkMay 28th, 2009 at 6:51 am

Неплохо… Огромное спасибо за инфу. Автору респект и уважуха.