Household Debt as % of Compensation

Estimates of losses cannot escape reckoning with the fundamental disparity between household debt and total employee compensation (wages, salaries, pension contributions). The same disparity, with a different formula, is expressed here. The total debt of American households was 79% of total compensation in 1978. It had more than doubled to 174% in 2008. “The problem is quite simple, all over the West,” explains the blogger Hellasious ("Hell as IOU's') at suddendebt.com. “There is too little earned income at the foundation of the economy to support massive debt and thus overinflated asset prices.”

In the right hand column of my blogbook is a mortgage calculator. Most college students are probably unfamiliar with how that works. But you will find out, one of these days. You should fiddle around with it, keeping in mind the ratio in the above chart. So:

* make your imaginary calculations in relation to the income levels of representative groups of Americans,

* make note of the difficulty faced by households in raising downpayments on a home (because of low household savings and falling values in the equity and real estate markets, where most household wealth is registered),

* then throw in the rising level of long term mortgage rates,

* and draw your conclusions.