Anyway, the debt graph is obviously in nominal rather than constant dollars. At the very least, it should be plotted on a log scale.

As far as personal debt, this is the ratio of personal debt to disposable income. It has edged up 1% for renters and 3% for homeowners since 1980. http://www.federalreserve.gov/releases/housedebt/default.htm

People can disagree with my characterization of the figures, but I don't see anything dramatic. I was surprised that the ratios hadn't increased significantly, given the expansion of credit availability.

Here is a nice graph from Brad Setser http://www.calculatedriskblog.com/2009/06/setser-who-bought-all-recently-issued.html

http://www.calculatedriskblog.com/2009/06/setser-who-bought-all-recently-issued.html

"… the Fed’s flow of funds data leaves little doubt that — at least during the first quarter — the rise in public borrowing was fully offset by a fall in private borrowing."

http://blogs.cfr.org/geographics/2009/06/12/offsetting-borrowing/

"Overall borrowing has not changed significantly"

I do agree with the last comment in the post — namely that personal balance sheets were crushed by the housing meltdown.

The rise in the overall debt ratio increase is largely due to a fall in the denominator. Grow the denominator and you improve the ratio.

Personally, I am quite happy with offsetting government and personal borrowing. Without it, we would have surely ended up with a deflationary spiral. In which case the ratio would be much, much higher.

The moral flaw in Richard's comment is encapsulated here: "..transfer of the debts that are not discharged or paid off to the state..".

The people who obtain this relief are those who borrowed too much, became bankrupt, lived beyond their means, also imprudent lenders to these imprudent people, and further the financial intermediaries who profited hugely from securitization of aforesaid imprudent loans.

The people who PAY this relief are all those who were prudent, saved, and managed their affairs properly.

This transfer of debt from private to state hands is nothing short of the "Crime of the Century" (hat-tip Supertramp!).

This rewarding of financial imprudence harms the social fabric of the country for decades to come.

Yep, we are mired in debt but unlike the 30's we aren't the worlds biggest oil producer, industrial power and creditor in the world.

And unlike the 30's the demographics are getting worse with huge entitlement spending looming on the near horizon …

We are insolvent on an aggregate basis and worse, we owe trillions in debt to foreign investors … Somethings got to give …

Trust Fund Assets, 2007 & 2008

Size of unfunded liabilities derive from assumptions made about, well, future conditions – dropping the assumed [75 yr or 'infinite'] future into the present while not relating the amount to an also assumed GDP for the same period(s) is a MSM scare tactic.

Saying that, yes, no doubt the U.S. healthcare system requires drastic improvement, something unlikely to occur so long as private insurers have their hands in the pot.

While what you say makes sense as an option these despotic "leaders" have and seem to be implementing, it is an absolute disaster. Transferring private debt to gov't, to be paid later via taxes applied to all citizens, is a pathetic, immoral act.

The core problem is, and was, the structure of the monetary system. A fiat money, fractional reserve system (highly leveraged) is a tool of interventionists and despots. These systems, combined with large gov'ts financed by taxation systems that are complex and confiscatory, are designed to impoverish the middle/working class. Like all interventions, in the end, this will blow up and cause the desitution of the majority of the population.

Regardless of what happens in the next month or two, look for the bond market to start spanking the Fed really hard no later than the fall..imagine what the upcoming major bond market bear will do to the masses of debt slaves out there..then, let the real de-leveraging begin..the best/fastest, but ugliest way, to overcome this crisis is to reduce debt in a major way – and what better way is there than a major drop in most bond prices – inflation or deflation (more likely in next 6 mts)?
JO

The mechanisms put in place from 1790 to 1792–the Bank of the United States, funded long-term U.S. debt, federal assumption of state and local debt, and the forerunner of the New York Stock Exchange–became the playground of the incipient speculator class… The first American wave of securities speculation came in New York and Philadelphia in 1791, as Bank of the United States shares climb from $25 to $60, peaking at $170 in some three months. Similar speculation developed in the new U.S. bond issues, and when the bubble around Bank of the United States and other bank stocks popped, Hamilton ordered the treasury into the market in March and April of 1792 to support the price of government debt. His allies sighed with relief over what by some accounts was the first U.S. financial bailout.

While Jefferson’s now-victorious party, the Democratic-Republicans, consisted of a more homespun and egalitarian crowd, during the new century’s first decade they overwhelmed the Federalists in part through equally partisan politics. These began with the National Debt Reduction Act of 1802 to repeal all internal taxes, take on no new debt, and reduce the existing national debt through tariff receipts. Bankers were glum, while Democratic-Republican farmers and frontiersmen cheered.
~
–Kevin Phillips, Wealth and Democracy

That’s right, Richard. We surely wouldn’t want any of the Masters of the Universe to have to give up their new Gulfstream G650s, their yachts, their summer homes in Aspen, much less their penthouses overlooking Central Park, would we?

And Hamilton? What more can we say? He’s from the same school of thought as Geithner and Bernanke—anything and everything for the rich, and pass the tab to ordinary working Americans.

The debate over the compatability of wealth and democracy is as old as the republic. From the start, concern that the egalitarian-seeming United States of the late eighteenth and early nineteenth centuries might develop wealth concentrations to match Europe's was a worry for many but also the guarded hope of an important few.

"In the current situation what is going on here is the gradual cleaning up of individual and corporate balance sheets, and the transfer of the debts that are not discharged or paid off to the state primarily to ameliorate the human hardship caused by the drop in consumption, and probably an eventual increase in the tax take by the Government to pay off these debts,…"

This is an extremely optimistic scenario according to which the US-government will be able to slowly engineer the debt bubble away by taking over a large amount of the debt onto its balance sheet. Quite possible the rational of the actions by the government is carried by the believe they can both slowly dissolve the debt bubble and prevent a depression, maybe worse than the Great Depression, and massive social disruptions and other consequences, having economic growth instead generating enough tax income to pay off the debt. Richard apparently subscribes to this scenario.

Let's talk numbers. How much debt will be moved from private and corporate balance sheets to government's balance sheet to achieve this? 20 to 30 trillion US-dollars? Or how much? And what consequences will this have for the ambitious plans of the Obama administration?

cheers,

Leo