<table> </table> The real problem in the economy is not the housing market, oil prices, too much or too few taxes, or the presidential election.</p><p>The problem with the economy (and the resultant problems within the financial system) has to do with the age-old issue of debt.</p><p>The amount of debt within the U.S. economy is massive. As compared to GDP (Gross Domestic Product, the actual size of the economy), total financial debt outstanding in our country is 349 percent.</p><p>In other words, for every $1 in GDP, $3.49 in debt currently exists, and needs servicing.</p><p>Looking at history may give us a guide as to the amount of leverage within the system.</p><p>In the year 2000, this ratio of debt to GDP was 2.5 to 1. In 1980, the level was 1.5 to 1.</p><p>Our nation has grown addicted to debt and living beyond our means. This includes not just consumers but businesses and the government.</p><p>The Japanese are carrying a debt/GDP ratio of 2.1 to 1. The U.K. is even less levered at a ratio of 1.9 to 1. So even compared to other countries, our debt level is simply too high.</p><p>It has led to financial instability. Many of our nation&#8217;s financial institutions lack the equity capital to survive debt defaults, including mortgages. All financial manias in the past have shared one aspect: they have been driven by too much debt being created and exploited.</p><p>What can our federal government do? Focus on policies that reduce federal spending and increase individual savings.</p><p>Should the government provide financial assistance to organizations that have run their business on a basis which has emphasized the exploitation of debt?</p><p>No. the government needs to focus on supporting companies that are integral parts of the financial system, not every debt-laden company that comes asking for a handout.</p><p>Are we going to suffer a recession? We are of the opinion that a recession (if not already here) is likely unavoidable.</p><p>Unfortunately, we expect the unemployment rate to rise in the months ahead.</p><p>How do we get out of this mess? Time and savings.</p><p>People and businesses need to increase savings rates and reduce outstanding debt.</p><p>Americans have lived through and prospered after hard times. We have dealt with much worse in the past.</p><p>We simply need to live within our means. If we continue to live beyond our means, we will lose control over our own financial destiny.