A limited (read: fast) critique of Bill Gross' latest rambling.

Quickly: Bill Gross' latest rant says that overleveraged debt and low earnings from the act of lending (due to rates at near-zero), has caused credit to shrink and economies to slow.  His (odd) solution is to point to a need to resolve "structured impediments such as regulatory risk standards for banks and fear of losing money for households."

Whatever, Bill.  Loosen lending standards and the world is a better place?  Newer, stricter rules would simply provide a new normalized point, at which total debt would continue to grow at a similar rate.

Anyway, Bill's presumption of overleveraged private debt, is dependent upon the chart he included -- see the first chart, below.

I thought it odd, because a dollar amount of debt does not help determine the nature of that debt.  A $10,000 debt to a person earning $100,000 is a drop in the bucket, whereas that same $10,000 debt to a person earning $10,000 is enormous.

The reasonable thing to do, is to compare the same time series of private debt, to nominal US GDP (I'm assuming that the private debt chart is of nominal debt) -- see the second chart below.  If I had more time, I'd actually use private debt as a percentage of total US GDP, but I don't quite have the time to do that properly, and I'm sure someone else will.

Under the Bush Administration, private debt seems to have increased faster than GDP.  There is a possible tie-in to this story about how African-Americans have seen the wealth gap with white people, grow since 2004.  It appears that this is more evidence that supply-side economics failed, as Americans had to borrow more than at a matching rate of GDP growth.

But I've got work to do, so I'm just leaving it at this: Bill Gross didn't make the case that private US debt had been overleveraged.

Bill's chart of "too much debt"

Bureau of Economic Analysis' chart of the same time period, nominal US GDP