As readers of this blog know, I'm a fan of keeping things in perspective. With everyone obsessed by the current debt crisis, deleveraging, and collapsing demand, I've noted that there is no shortage of money out there; that there is more money and bank lending today than ever before; and that the big deleveraging play has likely maxed out. Although big money players were undoubtedly over-leveraged, this chart shows that households on average did not take on excessive levels of debt or financial obligations in recent years. (The most recent datapoint is the end of September '08.)
Household debt and financial burdens (measured by using monthly payments as a percent of disposable income) today are about the same as they were in 2002, before the financial system began devouring mountains of subprime mortgage-backed securities, and before speculators pigged out on commodities, gold, and foreign currencies.
What this means is that once the financial system finishes writing down the value that has been lost to plunging housing values and collapsing commodity prices, we will discover that the basic economy (the consumer) is still in reasonably good shape.