• Household debt has apparently been dropping as a percentage of GDP. Corporate went up a little bit, but is mostly flat. Financial borrowing also fell. Government is the only one that really went up recently.
• It's certainly not a given that the so-called 99% will continue to increase consumption.
• The biggest portion of household debt is mortgages. If / as 99% gets priced out of the housing market, household debt is likely to fall a little bit.
• The big expansion in household debt over the past few years isn't "buying stuff," it's borrowing for college education.
• Companies aren't actually spending the money they are borrowing -- they're just sitting on it. It is very cheap to borrow, and most of those loans are short-term; they're borrowing to have a cushion, in the event they need to ramp up on short notice.
Private debts could turn into an issue, when the lessons of the last bubble have worn off. 2017 might be a bit soon for that.
Companies could pay people more; government could provide more funds to higher education to reduce tuition costs; corporations could reduce borrowing; Americans could stop buying crap they don't need.Can it be countered or stopped? How?
If you think any of that is likely to happen, I have a great investment opportunity for you in a great piece of infrastructure that is about to be privatized....
No.When the American common people are force to default on personal debt en-masse, doesn't it follow that the American Government will also have to default as well?
The American public did default in huge numbers during the last recession. What they did was deleverage, i.e. they stopped buying homes and crap, and paid off their debts. This in turn aggravated the recession, because so much of our economy relies on people buying homes and crap. What they also did was continue to pay their taxes, at least enough that the government was nowhere near defaulting for anything other than political nonsense in Washington.
The single most effective thing the government can do is for the Fed could raise interest rates, which would make it expensive to borrow. This would in turn create a recession. People would buy fewer homes, and less stuff to put in their new homes; businesses (of all sizes) would cut back on inventories and expansions, in part because people are buying less stuff and in part because it'd be more expensive to borrow (and they often need to borrow to expand and/or tide over bad times).Does the solution lie in Government Action, or in the Private Sector, or Both?
Now, it might be the case that a Fed-induced recession is, in fact, preferable to a massive debt crunch in the future. However, unless there is an immediate crisis in the here and now, it's not going to happen. Even when there is an imminent issue, it can be tough politically to pull off. For example, Carter appointed Paul Volcker to the Fed, and Volcker insisted on raising interest rates to curb the double-digit inflation of the late 70s. It created a recession at the start of Reagan's term, but it also tamed inflation. Reagan hated the policy, and Volcker got eased out. If for some reason it hadn't worked, Volcker would have been hung in effigy for a generation.
In other words, even under the best of circumstances, a bubble is extremely difficult to pop early. No one has the incentive to do so. Politicians who do so get blamed for the immediate crash, and don't get credited for the crisis they averted (as we see so obviously with the last recession). The private market wants to ride a wave for as long as possible, in part because everyone thinks they can be the smart one who times the market and makes a fortune. The public still wants to buy homes, send their kids to college, and buy cars. And so on.
Even when we find a bubble-thwarter that works (like a split between investment and commercial banks), people either find ways around those protections and/or forget that they were useful in the first place.
So yeah, I'd guess there isn't much to be done about it.