we owe too much | July 23, 2012

http://www.theatlantic.com/business/archive/2012/07/economic-growth-idea-forgive-or-restructure-debt-us-citizens-hold/260155/

Economic Growth Idea: Forgive or Restructure Debt U.S. Citizens Hold

By Steve Clemons

Jul 22 2012, 12:15 PM

In a short report (pdf) we are releasing today that explores the behavior of private debt before and after economic crises — not only in the US, but in Japan as well as a number of European nations — we have noted that (1) a fast run-up of private debt combined with (2) a level of private debt more than 150% of GDP were evident in both the Great Recession of 2008-2009 as well as in America’s Great Depression.

Federal debt was inconsequential to these crises. Charts in the report (pdf) we are posting today make clear that Spain, economically beleaguered today, was in excellent federal balance sheet health before the recent Eurozone financial quakes started.

So as a predictor of future crises, we suggest that private debt growth rates combined with the absolute level of non-government, private debt are the two most important factors to flag.