Baby You’re A Rich Man, Too?

I am a huge fan of NPR's Planet Money and This American Life podcasts, and I encourage all to start listening to them. Anyways, recently This American Life did a collaborative story (Bad Bank) with Planet Money - it was a very well thought out story on the economy. One part really stuck out to me and I felt that I should share it:

Alex Blumberg (host): ...But beyond the balance sheet, David Beim [Columbia Business School Professor] has a much more profound reason why banks shouldn't lend. He shows me something on his computer.
David Beim: Ok, so here is a picture, a graphic, and a chart that goes back to 1916 and up to…
Alex Blumberg: We’re in his office, and we’re looking at a graph, and it's, basically, a measure of how much debt we the citizens of America, are in. How much we all owe--on our mortgages and credit cards and auto loans--compared to the economy as a whole, the GDP. And for most of history, the amount we owed was a lot smaller than the economy as a whole. This ratio, household debt to GDP bounces along around between 30 and 50 percent, for most of the '30s and '40s 50s, 60s, and 70s, right into the 80s. Then it breaks through 50 % in the 80s, starts heading up in the 1990s. And then ..
David Beim: From 2000 to 2008, it just goes, almost a hockey stick, it goes dramatically upward.
Alex Blumberg: Like a rocket.
David Beim: It hits 100% of GDP. That is to say, currently, consumers owe $13 trillion when the GDP is $13 trillion. That’s a 100 % of GDP owed by individuals. That is a ton.
Alex Blumberg: I'm going to ask a leading question, because I’m looking at a graph right now. Tell me professor, has there ever been a time where we owed that much before?
David Beim: I’m glad you asked me that. And guess what? The earlier peak, which is way over on the left part of the chart, where debt is 100% of GDP, was in 1929. This is a map of twin peaks. One in 1929 and one in 2007.
Alex Blumberg: Does that chart scare you?
David Beim: Yes. That chart is the most striking piece of evidence that I have that what is happening to us is something that goes way beyond toxic assets in banks, it’s something that had little to do with the mechanics of mortgage securitization, or ethics on Wall Street, or anything else. It says the problem is us. The problem is not the banks, greedy though they may be, overpaid though they may be. The problem is us. We have over-borrowed. We have been living very high on the hog. We are, our standard of living has been rising dramatically over the last 25 years, and we have been borrowing much of the money needed to make that prosperity happen.
Alex Blumberg: And so, when you see Congress, sort of saying we need more, we need to make sure there are strings attached to this money, to make sure the banks are lending it out, that doesn’t make any sense.
David Beim: It makes, not only no sense, it makes reverse sense. It’s nonsense. Because what the banks have done is already lend too much. The name of this problem is too much debt. I really think that's the heart of what's wrong with this. We have over-borrowed, and we have done that over many, many decades. And now it’s reached just an unbearable peak where people on average cannot repay the debts they’ve got. In the face of that, it is no solution to try to lend more.

I don't mean to get on a pulpit or anything, but those who belong to the same religion as me (The Church of Jesus Christ of Latter-day Saints) have heard this over and over again. The quote oft heard is "live within our means." The earliest I could find it in print was in an April 1957 General Conference Talk by Ezra Taft Benson (here). Fifty-two years ago. Perhaps its time we start listening.