"started by over-indebtedness."

From mine of 10 June of this year:

Debt-to-GDP? Really?? GDP is highly unstable, and probably affects the ratio more than debt does. I'm reminded of something Scott Sumner said. In comments on Debt surges don’t cause recessions, Vivian Darkbloom "ran across another [debt-to-GDP] chart", one that goes "back to 1920". Vivian provided a link to an old Steve Keen site but the link no longer works, so I can't show the graph.

But based on Scott Sumner's response, I'm pretty sure the outstanding feature of that graph was the massive spike associated with the Great Depression:

Vivian, Thanks for that graph. Here’s my prediction: 99% of people will misread that graph. Most will think it shows a debt bubble before the Great Depression. In fact it shows there was no debt bubble before the Depression. Rather the debt ratio rose DURING the Depression, but only because the denominator (NGDP) fell.

I agreed with Sumner that the debt ratio rose sharply "DURING the Depression" and that it rose because the denominator fell. Again, GDP is highly unstable, and probably affects the ratio more than debt does. But I didn't just agree with Sumner and let it go; I said "Agreed. But ..."

Agreed. But if you were around in 1910 or 1920, the Roaring 20s probably looked very much like a debt bubble. It's not that "there was no debt bubble before the Depression", but that in hindsight the bubble is insignificant when compared to the debt spike of 1929-1933.

And when compared to the debt we've accumulated since that time.

This comes up because I was reading Irving Fisher, writing in 1933:

36. The depression out of which we are now (I trust) emerging is an example of a debt-deflation depression of the most serious sort. The debts of 1929 were the greatest known, both nominally and really, up to that time.

Sumner can say what he wants about "no debt bubble before the Depression" but I'm going with Irving Fisher, who said the debt before the Great Depression was the most debt ever accumulated -- up to that time.

Also from my June post, this graph from Martin Wolf:

The vertical line just before 1930 shows the start of the Great Depression. The sharp increase after that, just to the right of that line, is the debt ratio rising because GDP fell, as Sumner says.

To the left of that vertical, we see what happened leading up to the Great Depression. Debt was a little high in the 1870s, about 150% of GDP. Then it fell to around 125%. From that low, debt increased persistently for 50 years, reaching almost 200% of GDP; this happened before the Great Depression.

That persistent increase from 125% to 200% produced what Fisher called the "greatest known" debt. It looks low on the graph today because debt has gone so much higher since that time. But that 50-year increase in the debt ratio paved the way for the Great Depression. As Fisher has it:

19. I venture the opinion, subject to correction on submission of future evidence, that, in the great booms and depressions, each of the above-named factors has played a subordinate role as compared with two dominant factors, namely over-indebtedness to start with and deflation following soon after...

Over-indebtedness, to start with. Couldn't be more clear on the cause of the troubles. Couldn't be more clear. On the cause of the troubles.

21. Disturbances in these two factors—debt and the purchasing power of the monetary unit—will set up serious disturbances in all, or nearly all, other economic variables. On the other hand, if debt and deflation are absent, other disturbances are powerless to bring on crises comparable in severity to those of 1837,1873, or 1929-33.

Yes, and we can now add 2008-09 to that list. The "future evidence" is in. Fisher was right.

22. No exhaustive list can be given of the secondary variables affected by the two primary ones, debt and deflation; but they include especially seven, making in all at least nine variables, as follows: debts, circulating media, their velocity of circulation, price levels, net worths, profits, trade, business confidence, interest rates.
23. The chief interrelations between the nine chief factors may be derived deductively, assuming, to start with, that general economic equilibrium is disturbed by only the one factor of over-indebtedness...

The conclusion to that last sentence is other things equal, the perspective commonly employed by economists.

And then, this:

Paragraph 24 above gives a logical, and paragraph 27 a chronological, order of the chief variables put out of joint in a depression when once started by over-indebtedness.

"started by over-indebtedness."