debt overhang

Doesn't exactly jibe with DeLong's take.

What Janet Yellen — And Everyone Else — Got Wrong by Krugman

Unfortunately, the economy didn’t come roaring back. Why? 

The best explanation, I think, lies in the debt overhang. For the most part, even those who correctly diagnosed a housing bubble failed to notice or at least to acknowledge the importance of the sharp rise in household debt that accompanied the bubble: 

 

Ratio of household debt to personal income 

And I would argue that this debt overhang has held back spending even though financial markets are operating more or less normally again. 

Finally, nobody really anticipated the disastrous response of policy, above all the squeeze on public spending at a time when we needed more government spending to sustain the economy until private balance sheets were repaired. Here’s total (all levels) government spending deflated by the implicit GDP deflator (an overall price index), comparing the last recession and aftermath with the Bush years; if spending had grown this time the way it did in the past, unemployment would probably be close to 6 percent: 

In short, getting the bubble right, while no small thing, wasn’t enough; Yellen (and many other people, myself included) underestimated the fragility of the financial system, but also the importance of household debt, and, above all, the foolishness of policymakers.

How does debt overhang show up in the demand data? Consumer spending? Business investment? Housing?