What matters more than nominal amount of debt is the debt-to-income ratio. If people have income (or liquid assets) to cover their debt payments, things are fin

What matters more than nominal amount of debt is the debt-to-income ratio. If people have income (or liquid assets) to cover their debt payments, things are fine. It's generally when that ratio gets large that problems arise. Also, debt is money. When you give me something of value, and I say I will pay you later for it, we have created money. A big part of the problem in down cycles is that lending drastically decreases, and there is therefore less money (broadly defined) in the system.