Too much debt was one of the main causes for the credit crisis in 2008. So I have been trying to figure out if the total debt-to-GDP ratio has been declining the last few years.
Total US credit market debt-to-GDP has indeed been declining from 385% in 2008 to 355% in December 2012.
Update (November 2013): Right now the ratio seems to be around 345%
In dollars total credit market debt has still been going higher, mainly fueled by the government spending, while household debt has been declining.
US Government debt.
We are moving in the right direction. To much household debt is bad for an economy because people who have run up to much debt will stop spending. Their debt needs to go down so they will have more money to spend on goods and services instead of on interest.
This long term chart which also shows total US credit market debt as a percentage of GDP for the great depression shows that we are following the same pattern as in the great depression.
We are going to a more sustainable ratio. Only we are going a bit slower than in the ’30’s but that is maybe a good thing if we want to prevent a lot of civil unrest and the rise of fascist political movements as happened in the ’30’s .