A massive overhang of debt

With all the analysis, blame-laying and doom-mongering about the riots, I wonder if the speech George Osborne gave today about the global economic situation will get a bit lost. That would be a shame, I think, as he said some very interesting things about the amount of debt that many developed countries are in, and the impact that this debt is having. Osborne noted a few triggers for the ski-jump-like falls in the financial markets over the last week or so:

Mr Speaker, it is not hard to identify the recent events that have triggered the latest market falls.

There has been the weak economic data from the US and the historic downgrade of that country’s credit rating.

And the crisis of confidence in the ability of Eurozone countries to pay their debts has spread from the periphery to major economies like Italy and Spain.

Then he went on to explain what he thinks is the root cause of all these events, and this is the part that really caught my eye:

But these events did not come out of the blue.

They all have the same root cause.

Debt.

In particular, a massive overhang of debt from a decade-long boom when economic growth was based on unsustainable household borrowing, unrealistic house prices, dangerously high banking leverage, and a failure of governments to put their public finances in order.

Unfortunately, the UK was perhaps the most eager participant in this boom, with the most indebted households, the biggest housing bubble, the most over-leveraged banks and the largest budget deficit of them all.

Moaning about how stupidly high house prices are is one of my hobby-horses so I was pleased to see a senior politician like Osborne talk about a housing bubble. Is the Government preparing to let house prices fall back to a sensible level, i.e. somewhere near the long-term trend value of around four times the average salary? Given how much of the UK's sense of well-being seems to be tied up with increasing how prices I'm still rather sceptical, but we shall see... (Graph taken from This is Money.)