Jesse Livermore puts up this chart in his twitter:

Trying to lead us to believe that the rise in the debt ratio (mostly reflected in the rise of mortgage debt) is a consequence of wage stagnation since the early 1970s.

A chapter of the “debt story” was told in this post. I include additional elements in this chapter.

The first point to notice is that the debt ratio only rises significantly after 1983; 10 years after wages stagnate according to his data. Coincidentally, at the time the “Great Moderation” begins!

The charts below give a different reading of the whole process.

Wages “stagnate” (relative to productivity) only after the “Volcker Transition” has brought inflation down. Notice that the cost of buying a house (getting a mortgage) drops with interest rates tumbling down.

In the 1990s, despite additional interest rate decreases, the mortgage debt ratio stays flat, shooting up during the “Great Corruption” beginning in the early 00s.

So I´m not convinced of the “wage stagnation story” as harbinger for the rise in debt.

Update: Ryan Sanchez sent me this post on the “Debt question”. It´s very much worth reading.

HT: Saturos