The primary driver of the American economy has not been manufacturing efficiencies, the transformation to a service economy, immigrant vibrancy, favorable tax policies, or financial innovation. It has merely been an near-continuous increase in the amount of debt, which presently stands around 375% of GDP. As the chart comparing the percentage of annual GDP growth (green line) to the percentage of total commercial bank loans (blue bars) indicates, continued GDP growth does not look to be sustainable because the total amount of outstanding commercial bank loans has been rapidly contracting since its peak in October 2008. The 6.51% year-to-year contraction in LOANS over the course of 2009 was unprecedented in the post-war period; the 1.49% year-to-date contraction in TOTLL projects to a remarkable and equally unprecedented 13.26% contraction for 2010. Unless the Federal government can continue to substitute public debt for private debt on a one-for-one basis as it did through the third quarter of 2009, this promises to be a very good test of Austrian economic theory and the hypothesized link between debt contraction and economic contraction.

Monetarist theory teaches that low interest rates will create economic growth. Keynesian theory teaches that aggressive deficit spending will create economic growth. Austrian theory teaches that contracting debt leads to economic contraction. Now that we have entered into what looks like an extended period of low interest rates, aggressive deficit spending, and contracting debt, it should become very clear which is the most accurate of the three rival economic theories.