Healthy Household Debt to GDP

Post #755

After credit cards and other borrowing instruments were introduced in the early 1950s, a steady-state level of household debt to GDP was achieved, reflecting the debt level that households carry in a modern economy (with modern debt instruments in place). But after the 1960s, new restrictions on economic freedom were implemented.

The U.S. government started to “intervene” more in the U.S. economy.

One adverse effect of further restriction of economic freedom — moving the USA even further away from free market capitalism — was a rise in the GDP-adjusted debt loads on U.S. households:

Even in 2023, household debt is still above the putative “red line” added to this graph. It is healthy for an economy to exist between the green and yellow lines. But current U.S. households are attempting to exist above the red line — where they are no longer resilient to negative shocks like they were in the 1960s and 1970s.

To restore resiliency to U.S. households, it is imperative to cut intervention levels. This requires down-sizing U.S. government, turning back the clock at least to the 1960s, when the size and scope of government was not so ominous as it is today.