the Fed and the federal government papered over the economic malaise with credit. Offering artificially-low interest rates and leading by example by borrowing, printing, and spending fiat dollars, Washington (the Fed and the federal government) has conditioned the American public to forgo savings and borrow its way to a level at which it feels comfortable living in the worst economy since the Great Depression. Reports of household deleveraging are false: the majority of deleveraging has been due to write-offs. The miniscule reduction in credit we've recently witnessed has been a function of many Americans reaching a point at which financial institutions won't lend to them any more.
But, despite this "deleveraging", the divergence between household debt and savings continues to grow. This will eventually lead to disaster. The imminent credit disaster, of course, is the bursting student loan bubble, an event we can expect sooner than later. $120+ billion in federal student loans are currently in default, and the student loan default rate has matched the mortgage default rate at the peak of the sub-prime crisis. The bursting of the student loan bubble will cause cascading credit defaults, leading to another financial crisis and the 2nd leg down (or 3rd, depending on how you look it) of this economic depression. And all of this is because, as you can clearly see in the chart above, since Nixon took us off the gold standard in 1971, Washington has been conditioning the American public to borrow until it's a detriment to the economy.