Tuesday, January 25, 2011

Largest US Banking Crisis since 1929 Recap

I was listening to "This American Life" special on "Bad Banks" during my morning commute and came across this very interesting point made by one of their contributors.  This very intelligent professor/ economist graphed the relationship between annual GDP verses our aggregate household debt.

The economist found this amazing, and disturbing correlation. For most of the 1940s and 1950s, aggregate household debt (mortgage, car, credit card, etc) never exceeded 50% of the national US GDP for that given year. From the years 2000-2007, aggregate household debt shot up to 100% of the national US GDP for those given years.  The takeaway is actually quite interesting.  The data shows a strong correlation that most of the prosperity and growth we have experienced during that period of time was on "borrowed" money.

One other disturbing note was that the researchers found out this has been the second peak.  The first peak where our aggregate household debt was 100% of national US GDP was in 1929, right before the Great Depression.

In other words, this financial crisis isn't just the banker's fault, as greedy and careless as they have been, but all of America contributed to it.  Hard to admit we're all at fault, eh? Just so much easier to blame others, it's the American way.

Full podcast and stream here.

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