Sunday, January 1, 2012

one number to rule them all

There is already a bookshelf full of analysis picking apart the wreckage of the economic calamity to determine why it happened. Tons of blame has been passed around - incompetent or unethical bankers, Fannie & Freddie's structural flaws, unscrupulous mortgage brokers, trickle-down economics - and I don't doubt that there's some validity to all of it. To me, the debacle exposed flaws in every link of the chain.

Still, I think the whole mishegas can ultimately be boiled down to one thing: the consumer debt surge that preceded the disaster. I'll have more to say about this in future postings, including why it happened and its implications on how we move forward, but if a picture tells 1,000 words, it's worth taking a moment to consider the chart below, which depicts the debt burden of American households since WWII:

Two conclusions you can easily draw from this:

1. In retrospect, it's hard to imagine a soft landing to what built up over the last 25 years.

2. Despite the relative thriftiness of the last 3 years, we still have a long way to go.

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