There is no precedent in US — or any other — history for the level of personal debt now carried by the American people. Consider the raw numbers. In 1974, Federal Reserve data show that US mortgage plus other consumer debt totaled $627 billion. By 1994, the total debt had risen to $4,206 billion, and by 2004, it reached $9,709 billion.  For the second quarter of 2005, the Fed announced that the nation’s debt service ratio (debt payments as a percentage of after-tax income) was 13.6%, the highest since the Fed began recording this statistic in 1980. Past borrowing now costs Americans so much in debt service that more borrowing is required to maintain, let alone expand consumption.

These facts raise two questions: what caused this mountain of debt to arise and what are its consequences? Answering these questions is an urgent matter since, as has been known for centuries, the risks of high debt include economic collapse.

Since the real wages of most workers stagnated or fell since 1975, they responded partly by borrowing to maintain or raise their living standards. Over the last twenty five years, ever more enterprises (stock brokers, insurance companies, lending branches of industrial corporations, etc.) are seeking high profits by offering easier loans ….Read more….