When politicians and partisans talk about “the debt,” they are almost always talking about publicly held debt, the balance sheet of the US government. Yet overall debt includes a number of elements. You have state and local government debt, corporate debt, and individual private debt plays a role as well. Household balance sheets are just as important to an economy, if not more so, because the level of private debt can inform the level of consumer spending, which accounts for 70% of the economy. And it turns out that the US is at a six-year low in its overall debt, which at this point presents a problem for the economy.

Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.

Reduced borrowing means there is less competition for the U.S. Treasury Department as it sells debt to fund spending programs to help the nation recover from the worst financial crisis since the Great Depression. Credit-rating firms are discounting the improvement even as debt, equity and currency markets suggest the U.S. is more creditworthy than before Standard & Poor’s stripped the nation of its AAA grade in 2011.

This means cheaper debt costs for the Treasury, which is a decent by-product. But it really means that the deleveraging of household balance sheets creates a demand gap that the government ought to fill. Households that pay off debt do not use that money in new consumer spending. If the gap doesn’t get filled, then economic activity slows. It’s as simple as that. Borrowing costs for debt are at historic lows, and the United States – as a whole – is not borrowing enough.

In other words, this “pain” that the deficit scolds want the US to suffer has already been administered. Private individuals have felt it. That’s why they spent the last four years rebuilding their balance sheets.

The bottom line is that everything people wanted to see happen has happened.

The housing bubble was pricked and collapsed.

Total debt for the country has come down.

The US has experienced a massive amount of economic pain.

Now, time to grow!

There are only a few inputs for an economy. Consumers are deleveraging, as we see above. The global slowdown has stunted trade. Businesses won’t invest in the midst of a trade slowdown and consumer pullback. Government purchases, in this case, becomes the spender of last resort. So government should borrow more in this period until household balance sheets recover.

But the annual budget deficit actually fell in 2012 to the lowest percentage of GDP since before the recession. This is what an economic failure looks like. And believe it or not, the US is light years ahead of the rest of the world on this. Our modest recovery outpaces other countries because of our deficit. We’re just not doing enough to stop the pain.