I know that's not what you hear in the media. Wall Street and Washington are busy telling you that we are continuing to pay down debt and the health of the country's balance sheet is improving.

The truth is that consumers and businesses are paying down debt but their budgetary prudence is more than being offset by the profligacy of the government.

We can see from the Flow of Funds quarterly report put out by the Federal Reserve that households are reducing their debt at a 1.7% annual rate and business at a 1.8% annual rate. However, while the private sector gets their finances in order the Federal government is increasing its debt at a 28.2% annual rate!

The net effect is that the annual rate of increase in our nation's debt is currently 4.9%, which is even faster than the rate of increase of 4.1% experienced in Q1 2009.

So all the talk about the economy healing, as consumers save and businesses pay down debt is false. Since the government's debt is our debt, there has been no deleveraging in the economy and there has been no repair made to the country's balance sheet. All we have done is trade an overleveraged consumer and financial institution's balance sheet for a now vastly overleveraged public balance sheet.

It is most likely to be the case that all we have accomplished is to hold in abeyance the eventual pain involved with deleveraging. That's because the government has the ability to leverage to a greater extent than the private sector and can maintain that leverage for a greater period of time (don't forget to thank the Chinese). However, the government's debt is our debt and eventually must result in being reconciled through higher taxes and/or inflation.