We’ve already discussed the $51 trillion debt mountain (350% of GDP) crushing the US economy. To get this mountain back down to normal levels (150% of GDP) will mean eliminating about $25 trillion of debt. That’s some deleveraging.
Now, we’ll begin to break the debt down to its component parts, starting with consumers. Consumer debt has soared, too, in recent years. Specifically, it’s gone from 25% of GDP in the early 1950s to about 100% today. Most of this ballooning, moreover, has happened in the past 10 years.
What would it take to get consumer debt back to, say, 75% of GDP? The elimination of about $3 trillion of debt. Getting it back to 50% of GDP would mean eliminating about $6 trillion of debt. That’s a lot of scrimping and saving.
Charts from the St Louis Fed. Hat tips to John Mauldin and Gary Shilling.
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