Aug 24th, 2011
Here's a staggering visualization of the debt carried by ordinary citizens today.
Ezra Klein
points out how this is a game-changer:
"...what distinguishes crises like this one from typical recessions is household debt. When the financial markets collapsed, household debt was nearly 100 percent of GDP. It’s now down to 90 percent. In 1982, which was the last time we had a big recession, the household-debt-to-GDP ratio was about 45 percent.
That means that in this crisis, indebted households can’t spend, which means businesses can’t spend, which means that unless government steps into the breach in a massive way or until households work through their debt burden, we can’t recover. In the 1982 recession, households could spend, and so when the Federal Reserve lowered interest rates and made spending attractive, we accelerated out of the recession.
The utility of calling this downturn a “household-debt crisis” is it tells you where to put your focus: you either need to make consumers better able to pay their debts, which you can do through conventional stimulus policy like tax cuts and jobs programs, or you need to make their debts smaller so they’re better able to pay them, which you can do by forgiving some of their debt through policies like cramdown or eroding the value of their debt by increasing inflation."
So, we who have studied the ebb and flow of large interconnected financial systems keep beating the drum behind the refrain that "aggregate demand has collapsed."
Of course central monetary solutions and state investment are required. However, there is simply no arguing with the incredibly powerful and intellectually staggering arguments of the Republican opposition:
"It's Socialist to keep lead out of toys! Freedom means every one can be a millionaire but only if millionaires don't pay taxes! Deep Fried Butter for all, electric cars for none!"
Seriously. You cannot argue with that.
