Excessive debt levels in the USeconomy point to excessive inflation in the past and suggest that GDPgrowth, having been over-stimulated, will contract more severely thanexpected. Similarly, bank balance sheets must contract for debt levels to return to sustainable levels.

Consumer debt, however, is not the main problem. As unfunded liabilities come due, the US public debt will rise and servicing the public debt will grow significantly compared to tax revenues. Fiscal 2009 federal tax revenues were approximately $1.6 trillion, while spending was roughly $3 trillion. Interest on the US public debt was roughly $361 billion, thus the cost of servicing the public debt represented roughly 25% of tax revenues. At the same time, federal tax revenues have been in decline.
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