By Pete Moss

Special to The Pilot

As the political rhetoric dies away, is there any way to figure out what has happened to America?

The most cursory investigation would lead an unbiased researcher to point the finger at debt.

In the political arena, the focus is on government debt. Many Americans are passionately attached to the idea that the government has to operate like any American family and gather around the kitchen table to figure out how to make ends meet, how to make income cover expenses.

However, it is clear that Americans themselves have not been living solely on their income. That discussion around the kitchen table is usually about where to borrow the money to pay for an ever-increasing array of desires. So the expense gets run up on a credit card or the new car arrives courtesy of money borrowed using the roof over their heads as security; they take out a home equity loan.

The general understanding of debt is widespread. It can be a good thing because it allows debtors the flexibility to make sound investments in things like homes, cars and college educations.

Borrowers have to understand that sound borrowing works when the asset prices of things like homes and personal incomes are stable or rising - and that the risk of declining prices and/or evaporating income makes borrowing problematic and always entails some risk.

In 2008 and 2009, American borrowers learned that asset prices (home prices) could go down and that you could lose the income that was pledged to pay your debts. You had to take income that would normally go for consumption and use it to pay your debts. This is deleveraging, and it crushes employment and consumption.

American history is replete with examples of debtors becoming overextended and getting caught in this sort of deleveraging crunch. What happened in 2008 was different only in the amount of private debt Americans had pledged to repay.

In the last 30 years, Americans have slowly abandoned financial prudence and have adopted the naive notion that eternal prosperity had arrived. They came to believe that home prices would rise forever and that no one would ever lose their job. Both turned out to be false.

The financial crisis and near-depression of 2008 was profoundly linked to the growth of private debt that reached an incredible peak at that time. Private debt rose to equal 100 percent of GDP. It had reached that level only once before, in 1928, when private debt again served as one cause of a massive, long-lasting deleveraging recession/depression.

There were many causes for the massive run-up in debt. The expanded availability of credit cards was important, as was the housing bubble and the expanded use of home equity loans to suck cash out of one's home. Both made running up debt too easy. But clearly Americans decided to spend more on just about everything.

In 1980, the average American wedding cost $11,000. By 2007, this number had shot up in inflation-adjusted dollars to $28,000. It was easy to borrow the money, and American families felt they were entitled to the lavish nuptials for their sons and daughters. American consumer culture, using advertising as its main weapon, convinced Americans that they were living in a new utopia of consumer goods and services, and that going into debt to obtain them was just part of the program.

Americans now consume less because they are paying back those debts undertaken in the years between 2000 and 2007. There is less money for consumption, and the economy contracts. The Obama administration did a good job of using government policy to soften the impact of deleveraging. People who loudly proclaim that the stimulus failed are mindless partisans who ignore that bulk of the evidence.

But in the end, deleveraging is painful. Paying back debts from declining wages or paying the mortgage on a house that has dropped 50 percent in value is depressing. It would be ever so much more fun to go back to the days of mindless consumption and escalating debt. But reality does not work that way.

Pete Moss is a retired history professor who lives in Pinehurst.