The Banality of Debt

DES PLAINES, IL - NOVEMBER 11: A sign showing the American Express logo is seen outside of a bank November 11, 2008 in Des Plaines, Illinois.

Photo by Justin Sullivan/Getty Images

David Brooks wrote a column today about the Wisconsin recall election, but to avoid being totally boring he mixes it in with an extended discourse on debt:

Today we are living in an era of indebtedness. Over the past several years, society has oscillated ever more wildly though three debt-fueled bubbles. First, there was the dot-com bubble. Then, in 2008, the mortgage-finance bubble. Now, we are living in the fiscal bubble.

He has some intriguing theories about the psychological underpinnings of this shift. But did the shift even happen? Here’s a chart about the alarming acceleration in American household debt:

Now here’s the same chart in logarithmic scale:

It looks to me as if what happened is this. Starting at the end of World War II, American households began accumulating debt at a steady pace that continued uninterrupted throughout the Cold War, the Sexual Revolution, Ronald Reagan, the dot-com era, 9/11, the house price bubble, etc. Then since 2008 or so there’s been a totally unprecedented process through which nominal household debt levels have declined. 

In part in response to that unprecedented deleveraging, the federal government has borrowed a lot of money at extremely low interest rates. Mathematically speaking, it’s not possible for David Brooks to save money unless someone wants to borrow the money. If a country as a whole wants to become a net saver then it has to do what Germany did and lend the money to people residing abroad somewhere.