Reply #16: Private sector debt is the dealing between non governmental entities...

[WCGreen]

for example, you and the bank.

Most sustainable economic activity takes place when those transactions occur.

People buy things on credit and companies base their projections on the cost of private debt, credit card debt and companies borrow to finance capital activity and short term obligations.

If the private sector is not willing to lend or borrow, then that whole relationship falters.

Both companies and individuals suddenly became over leveraged when the value of the debt remained the same but the value of assets (homes, plants, stores, basically long term assets) declined so much that many people and small businesses owe more than the value of their assets.

This is why Mr. Galbraith offered the suggestions of a readjustment of asset value through governmental action.

That is the way I see it. I'm not an economist but I am an accountant and I understand the balance sheet fairly well. Entities, be the people or business, can't climb out from under their debt unless their assets and loans are revalued. Otherwise the economy will just struggle along for years until credit defaults and bankruptcy squeeze all that out of the system.