Debt - How Bad Is It, Really?

Okay, we've got a debt problem. But, how bad is it, really?

A little perspective:

Total Debt to GDP = 340%*
(about 13% is US govt, about 50% is domestic non-financial, about 30% is financial, and the remainder is debt issued overseas).

In the Depression, the debt problem revolved around corporate indebtedness. This time around, the debt problem revolves around personal indebtedness.

Example:
GDP = $100
Debt = $340
Debt financing cost = 6% = $20
Effective tax rate = 20% = $20

After tax, after financing income to cover living expenses, savings and investment:
$100 - $20 - $20 = $60

Bottom-Line: Not much wiggle room.

Another Perspective
From another perspective. Mortgage lenders often use the 33/38 rule. 33 relates to the percentage of your monthly gross income (before taxes) that is used to pay your housing costs, including principal, interest, taxes, insurance, mortgage insurance (when applicable) and homeowners association fees. The 38 refers to the same thing, only it also includes your monthly consumer debt (car payments, credit card debt, installment loans, and similar related expenses). Looked at from this perspective the current debt level is high, but manageable, ie. 20%-25% of GDP.

*The proportion doesn't include US Unfunded Entitlement Liabilities which would add another 300% to the total (that's right, ANOTHER 300%!!!)