The Globe and Mail | Household debt levels in Canada and the US at record highs

"Mr. Greenspan may be calm, but his British counterpart --Bank of England governor Mervyn King -- raised a yellow flag this week about the risk of high mortgage debt. 'When people take out very large mortgages ..... stretching themselves to the limit in the belief that house prices will always go up to bail them out -- that's a slightly risky assumption to make,' he said.

In his confirmation hearing before the U.S. Senate this week, however, Mr. Greenspan said he was 'not actually concerned at this point that we are looking at a real serious consumer debt problem,' because mortgages add an asset to consumer balance sheets and delinquency rates are low. The Fed chairman says debt levels should be less of an issue as the economy grows.

The fact remains, however, that U.S. household debt has risen twice as quickly as household income has over the past three years, while mortgage debt has soared by almost 50 per cent. That may have helped the U.S. economy through the recent downturn, but it still represents a very large bill that will have to be paid -- and the cost of paying it is going up."

The housing bubble mixed-in with consumer debt may be just a far-fetched worst-case meltdown disaster scenario at the moment. Then again, the same thing was said about those complaining of high P/E ratios before the dot-com meltdown.