Attack the root of the problem. That's how you get stuff done.

If too much debt caused our financial crisis, getting rid of it is the solution.

The good news is, we are. It gets repeated over and over again in the media that we're not recovering from the recession -- and doomed for another crash -- because nothing has changed. But plenty has. Household debt payments as a percentage of income have plunged over the past four years, now down to the lowest level since the early 1990s and comfortably below the long-term average:


Source: Federal Reserve.

Some of this decline is from consumers paying debt off. Some is from big banks writing it off -- consumer-centric banks like Bank of America (NYSE: BAC) and Citigroup (NYSE: C) have been jettisoning bad debt like there's no tomorrow. Some is from real wage increases. Some is from inflation. The reason doesn't matter. Consumers have much, much less real debt now than they did a few years ago. The plunge has been quick, and it's ongoing. That's what's important, and it's what plants the seeds for recovery.

But hold on, you say. Sure, household debt has plunged, but it's been replaced by government debt. While consumer debt has been falling at a record pace, government debt has been rising at a record one. Out one end, in the other. The tag line du jour is that you can't solve a debt problem with more debt. You still end up in a cesspool. "All we have achieved so far," writes one commentator, "is to move liabilities from private to public balance sheets, effectively burdening tomorrow's taxpayer."

There's some truth to this, but only a little. Private debt has been turned into public debt, but not all of it, and not as fast as private debt is being shredded. Total economywide debt -- that includes household debt, corporate debt, pension debt, state and local government debt, federal government debt, or anything that rhymes with the word debt -- as a percentage of GDP shows the total debt load is indeed falling:


Source: Federal Reserve.

Two ways to look at this chart.

One, the trend is down. That's good. The economy as a whole is shedding debt. Embrace it.

Two, wow, the current level is still astronomically high. Whatever progress we've made, it's peanuts in the grand scheme of things. We've got years of work to do.

Last summer, Bill Bonner of Agora Financial made some smart comments about this topic:

Consumers are paying off debt so quickly. Faster than the government is creating new debt, in fact. Looking at the latest figures, it's about a $500 billion net payoff per quarter. That's $2 trillion of debt that's being paid off each year. So let's do the math. If we were at 300% total credit market debt to GDP, and a comfortable average is 150%, then we need to pay down, let's say, about $20 trillion. So that's 10 years at current rates.                                                                                                    

I like that: 10 years. It's a nice round number. It's also what history shows: These things typically take about 10 years to pull out of. This correction started in 2007, so it will probably last until around 2017. So seven more years to go. And that's only if everything goes according to plan, of course. Things could change at any moment.

Things have changed a little since then. You can probably tell from the chart, the net payoff rate slowed over recent quarters. Last year, debt-to-GDP was falling between 1% and 2% every quarter. This year it's more like 0.6% to 1% per quarter, largely as the payroll tax cut swelled federal budget deficits.

One of a few things should happen from here. One, the trend stays the same, in which case it takes years, maybe decades, for total debt-to-GDP levels to revert to normal. Two, the trend picks up, and normalcy is hit sometime later this decade, as Bonner hints at. Three, consumers keep retrenching and the federal government hits a deal to really tackle public deficits over the coming decade, in which case a normal, sustainable level is hit over the coming years.

In any case, we've moving in the right direction. The root cause of our misery is being tackled. You can say a lot about our economy. Just don't say nothing has changed.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Houselowns B of A preferred. Follow him on Twitter @TMFHousel. The Fool owns shares of and has opened a short position on Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.