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Posted by: Michael Mandel on March 19
This chart, which plots the ratio of U.S. household debt to GDP, gets my vote for the scariest chart.
This chart shows something surprising…an enormous acceleration of borrowing starting in 2000, which didn’t let up until very recently. The solid line is the actual ratio, and the dotted line is where debt would have been if people had kept borrowing at roughly the same as in the 1990s. The difference between the two…roughly 25% of GDP in 2007…is the amount of extra debt.
So by this calculation, there is $3 trillion of extra debt that are weighing down households. That’s why the financial crisis has prove so hard to solve. The real scope of the problem is not subprime mortgages, but rather this $3 trillion extra debt.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.