Recently, the BBC’s Analysis podcast spoke with the authors of “House of Debt” about the economy and the economic ramifications of debt on the Americans (and British) economy.

Here is a description of the podcast from the BBC’s website:

Robert Peston tests the arguments made by the authors of a new book who claim the financial crisis was caused by exploding household debt – not by the banks. But are they right?

Now the BBC’s Economics Editor, he witnessed at first hand every twist and turn of the financial crisis of 2007 and 2008. He first exposed the crisis at Northern Rock as well as revealing the failure of Lehman Brothers. This makes him the ideal interviewer to probe the arguments and conclusions of “The House of Debt”, a radical new study of the recession and the lessons to be learnt from it. In discussion with the book’s authors, Atif Mian and Amir Sufi, he subjects their arguments to rigorous scrutiny.

They challenge the conventional wisdom that the banks were to blame for the recession in the US and UK. They argue that the real villain was the doubling between 2000 and 2007 in total American household debt to $14 trillion. Much of this was owed by borrowers with the poorest credit ratings. When the house price bubble burst and incomes also fell, these households suddenly stopped spending and plunged the US economy into deep recession.

By this argument, the banks weren’t the real problem. And yet, thanks in large part to their lobbying power, they received help which would have been better directed at helping indebted households. If correct, this means governments and central banks should fundamentally reappraise how they tackle future downturns, focusing much more on households and much less on bankers. For many, this may sound highly attractive. But does the new analysis pass muster with Robert Peston?