Americans assumed crushing levels of debt in the 2000s to buy expensive homes, homes they assumed would continue to rise in price forever. In 2007, household debt relative to income peaked at the highest level since 1928. (Uh oh.) When the housing market crashed, consumers were stranded with unsustainable debts, and until those debts are reduced, consumers will drastically cut back their spending. As consumers cut back, businesses lose revenue. As businesses lose revenue, they fire employees. As employees lose their jobs, their purchasing power is reduced. As purchasing power is lost throughout the economy, housing prices tumble again.
Rinse and repeat.
Since 2008, the debt burden on households has declined somewhat, partly because of increased saving, mostly because of mortgage default. But household debts have declined nowhere near enough, and the pace of household debt reduction is slowing.
The result: slow recovery of the private economy, weak consumer demand, paltry job growth -- considerably offset by continuing job shrinkage in the public sector.
But don't tell that to Paul Ryan and the tea party:
Conservatives ardently believe that big future deficits are the cause of today's unemployment. They feel it. They know it. And they don't want to hear different.
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