Opinion: The scale of the de-leveraging problem is gi-normous

I love a good chart and this is a beauty. This one has been doing the rounds of the blogosphere and investor briefings in recent weeks. It is from Florida-based research and broking house Ned Davis Research. The chart shows the ratio of total US credit market debt to GDP going from 1920 to March 2008.  It shows that the US economy was even more overleveraged than it was before the 1930s Depression. It is slightly out of date but it won't have dropped much yet. The scale of the unwinding will be extraordinary. No bank bailout will be big enough. No stimulus package will even touch the sides. Building up more government debt simply shifts it around. It doesn't reduce the size of it. We are in for a couple of decades of de-leveraging that will define a generation. Debt will become a dirty word in the same way it was for those who grew up during the 1930s and 1940s. We will all spend the next 20-30 years repaying debt. We simply have to spend less, save more and adjust to a lower standard of living.