MSNBC article reports that American debt and defaults are going down.
http://www.msnbc.msn.com/id/38332041/ns/business-us_business/
Currently, in our economy, debt levels are still too high and we have no room left to borrow more. Thus borrowing has stopped. And this is a good evil. It has to be done sooner or later. But it will cause deflation. Why? Because debt is our money supply.
Here is how banks create money out of thin air when we borrow:
http://www.kondratieffwavecycle.com/credit-inflation/
This new money makes it easier to earn. It makes the government look good. FED has been inflating bank credit for the last 50 years. It needs to inflate exponentially, higher and higher compared to the GDP to have the same effect. In other words, to have $1 increase in GDP, it takes more and more debt every year. When debt is not increasing faster, it becomes impossible to have that $1 gain in GDP. We are entering the Kondratiev Winter phase of Kondratieff Wave.
http://kondratieffwinter.blogspot.com/2009/10/kondratieff-winter-is-over-or-just.html
To encourage borrowing, government has various programs such as mortgage interest deduction from income tax, sub-prime was OK, no 20% down, liar loans (homeowners are good citizens they say), 8K tax credit for first time home buyer etc. The government does not want Affordable Housing. As home prices are coming down, instead of celebrating, they try to inflate it right back up. But now M3 (broad money supply) is deflating.
Deflation is the reason why we have unemployment, foreclosures. It will continue until the debt levels of the society is reduced so that people can start borrowing and expanding the money supply again. In Japan, it has been 20 years and they are not done yet. Prepare yourselves for the long haul.