If ever there was a smoking gun chart to try to explain to the lay economic reader (and those who cling to the failed paradigm), the fundamentals behind systemic risk, the Household Debt Service Ratio (DSR) is it.
Bill Mitchell recently posted on his blog an exhaustive analysis of the redistribution of income in the US and posted their equivalent DSR smoking gun (albeit on a longer timescale):
The following summary from Bill applies here:
While this strategy (increased debt) sustained consumption growth for a time it was unsustainable because it relied on the private sector becoming increasingly indebted. The strategy relied on the financial sector broadening the debt base and so riskier loans were created and eventually the relationship between capacity to pay and the size of the loan was stretched beyond any reasonable limit.
With growth being maintained by increasing credit the balance sheets of private households and firms became increasingly precarious and it was only a matter of time before households and firms realised they had to restore some semblance of security by resuming saving.