Toxic home loans better than Federal debt ratios

You know those evil lenders that gave all those toxic home loans?  You know the ones, they gave consumers debt that they couldn’t pay.  Well, it turns out that the ratios that they use to approve loans are MORE STRICT than what the federal government uses on itself when increasing the debt.  That’s because the “debt to income ratios” of home loans are WAY lower than those of the federal government.

Our government uses it’s own methods of deciding how much debt is too much for itself.  Oft quoted is the size of the Federal debt as a percent of GDP.  They do that because otherwise things look so bad.  Here’s the difference:

And here’s the problem.  The ratio, at 60%, mixes the debt of the federal government with the income of the entire economy.  So, we need to think of this differently.  If we think of the federal debt as a percent of federal receipts, it’s not 60%, as shown in this chart, but more like 400%.  Yes, our $2.38 Trillion in federal receipts is going to take a long, long time to pay down $10 trillion (and climbing) in debt.

If you still think % of GDP is a good way to look at it, then you need to include all the debt that is part of the GDP, not just the debt of the federal government.  For that I visited one of many sites, which gave me the total debt of $57 trillion.  This includes not just federal debt, but also “state & local governments, international, and private debt, incl. household, business and financial sector, including federal debt to trust funds”.  That’s the total debt needed to generate the GDP of about $14.2 trillion.  It’s the right number to compare to the GDP.  So we  end up with about 500% debt to income ratio.

Now, on to the reckless lenders of home loans.  They got in trouble because they issued risky home loans.  A risky home loan is one where the debt to income ratio is above around 300%.

400% ratio for the federal debt, 300% ratio for toxic home loans.  Is a federal debt crisis around the corner just like the home loan crisis was five years ago?  The home loan crisis nearly killed the economy, what will a federal debt crisis do?