Total Credit/Debt as a percentage of GDP will continue to climb, just as it did in the early years of the Great Depression, as real GDP declines faster than debt is liquidated through bankruptcy and foreclosure.
You will notice, in your chart, the prior meteoric rise in this ratio over the six year period from from 1929 to 1935. If you believe our current depression began in Fall 2008, this chart could suggest the Debt to GDP ratio will peak in 2014.
This six year period of time was a hugely deflationary event.
Japan in 1990 chose to inflate their way out of their consumer and business debt problem which has created the largest Government Debt to GDP ratio in the industrialized world. This "inflation" also slowed down the decline in prices for everything in their economy. But don't go looking for nominal price inflation, you won't find it. This is the Milton Friedman solution, which is currently being touted by Anna Schwartz and Paul Krugman.
Instead we are currently pursuing a policy which is half-way between:
A.) the Friedman advice for the government to spend as big as consumer and businesses are not, and;
B.) the advice of a U.S. Treasury Secretary about a hundred years ago when asked what should be done to solve the economic depression of that day, "Every American should sit under their own fig tree and vine until the depression passes."
During the Great Depression, which resulted from the creation of a credit bubble after WW-I, the U.S. government also chose policies which were half-way between Option A and Option B. So the policies today should result in similar results except that they're being done sooner. So today, government funding of the FDIC actually preceded and precluded the bank holiday.
You might ask, why in the world does it take six years to liquidate all of the debt? Look around today. You see home owners and banks attempting to sell their homes for far more than market price. You see banks failing to foreclose because they don't know what to do with the homes right now, and they're waiting for that "quick recovery" which is not going happen. It's a good guess that between now and five years from now, all of these heavily indebted consumers and businesses will have finally thrown in the towel and eliminated their debt through foreclosure and bankruptcy.
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