I've shown this chart several times now, and each time it elicits strong protests from readers. This update features data for the first quarter of this year that was released by the Fed last week. Note that this chart compares debt-related payments by households relative to disposable income. As such, it properly measures household's debt service burdens. (Comparing outstanding debt to income would show a rising trend, but that is misleading since it compares the stock of debt to the flow of income.)
One point I have been making is still very much valid: household debt service burdens have not increased materially for a number of years, so there is no obvious reason to think that we are now in some brand new era in which households will be behaving differently than they have in the past. Indeed, as the dotted green line shows, debt burdens today are almost identical to what they were at the end of the 2001 recession, and not a whole lot higher (only 4%) than they were in 1987.
Bear in mind that this data incorporates a lot of the housing market collapse, an unemployment rate of 8.5%, the loss of 5 million jobs, and almost the full brunt of the equity market collapse.
I would also continue to assert that this means that once the financial losses from the housing collapse have been fully absorbed—and it shouldn't be too much longer, considering that markets have already priced in most if not all of the projected losses—households could return to something akin to normalcy.
At the very least, it is comforting to me to see that household finances on average have not been materially affected despite all the turmoil of the past 18 months. Indeed, as the last few datapoints show, debt service burdens have actually decreased in the past few years.
UPDATE: Good friend Don Luskin reminds me that disposable income was artificially boosted by lower taxes and some stimulus effects in the first quarter, so adjusting for that would mitigate the degree to which debt service burdens fell.