We hear lots of misinformation about how a crushing level of private debt is allegedly a major obstacle to economic recovery, and to prosperity throughout the 1990s. The decade of the 1980s, we are told, saw unsustainable debt levels built up, both by individuals and by corporations or so the wailing goes. The debt load is so heavy, according to this line of thinking, that growth rates will be puny for years to come while we work our way out from under the heavy load.

What are the facts? Well, to be sure, debt is something that any borrower should undertake prudently, and for good and constructive purposes. When undertaken properly, however, debt need not be feared as though it were the second coming of the bubonic plague. This is especially true when debt is incurred to finance an acquisition that is appreciating (increasing) in value. I recently came across an article that contained more facts and sound analysis on the subject of our current private debt burden than any other I've seen. Consider:

".... According to the proponents of the slow-recovery thesis, the prinicpal impediment to a vigorous rebound is the excessive debt burden that households and corporations accumulated during the 1980s. Because, they continue, much of this indebtedness was not used to finance hard assets that generate income to cover debt service, businesses and households have little choice now but to devote an inordinate share of their resources to repaying these liabilities. Such payments must divert funds from expenditures on business plants and equipment as well as residential dwellings and other household durable goods.

"This reasoning ignores a startling fact: Americans' assets substantially outweigh their debts. U.S. nonfinancial corporations own $3.27 of assets for every dollar of credit market debt outstanding. Households own $5.35 of assets for each dollar of debt indebtedness. Against this background, the preoccupation with debt truly one of the smaller components of corporate and household balance sheets is puzzling to say the least, and misleading as well. Indeed, when the balance sheets are examined, the inescapable conclusion is that neither the corporate nor the household sector is burdened by excessive leverage and that both are poised to contribute to a fairly vigorous recovery.

".... Despite the debt incurred to finance takeovers and restructurings, for every dollar of increased indebtedness in the 1980s, nonfinancial corporations acquired 80 cents of financial assets plus $1.52 of tangible assets. Thus, while debt expanded swiftly, nonfinancial corporations added a total of $2.32 in income-earning tangible and financial assets for every dollar of increased credit market debt in the 1980s. This hardly seems to indicate that corporations are drowning in a sea of debt, or that they lack sufficient resources to service their debt.

"When the debt of U.S. corporations is compared with that of Japanese and German companies, the worrying over corporate leverage in America becomes all the more baffling. ... The ratio of the debt of nonfinancial corporations to GNP is almost twice as high in Germany as in the U.S. Japan's corporate debt increased four times faster than that of the U.S. in the 1980s, and currently is more than three times higher than America's. German and Japanese companies have of course, maintained these elevated leverage ratios for decades without any apparent harm to economic growth.

".... Households, of course, borrow for a variety of reasons, ranging from the acquisition of financial and tangible assets to the financing of vacations and other nondurable goods and services. In the 1980s, the credit market debt of American households increased by $2.47 trillion. Meanwhile, household ownership of tangible assets mainly houses, property, automobiles and furniture rose by $3.21 trillion, while holders of financial assets primarily deposits, credit market instruments, and equities (stock) increased another $7.54 trillion. Thus, tangible and financial assets of American households grew by $10.75 trillion in the 1980s, or by $4.35 for every $1.00 increase in debt.

".... [I]t should come as no surprise that neither changes in household leverage nor its absolute level has influenced aggregate U.S. consumer spending at any time in the post-World War II era. ..."