The data for this chart comes from the Fed and runs through the end of last year. The message is strong: as a result of deleveraging (some of it forced by defaults), refinancing, very low interest rates, and rising incomes, household financial burdens (payments as a % of disposable income) are now as low as at any time in the past 30 years. This is a direct reflection of the accumulation of all sorts of big adjustments that have been made in the wake of the 2008 financial crisis and the Great Recession. This also reflects the dynamism of the U.S. economy: when faced with great adversity, great adjustments are made, and these adjustments in turn prepare the economy for renewed growth.
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ReplyDeleteHousehold debt service plus government debt service to GDP is at
ReplyDeletea 30 year low..11.08%...lowest since
1st qtr 1981
You are correct, payments are at an all time low, but so are interest rates! Comparing interest rates between 1980 and today would show a somewhat wide gap...
ReplyDeleteNotionally, this should lead to an ability to consume more (great). However, Americans are already consuming more -- in fact over the past three quarters consumption has been growing faster than income
I suspect this does not include---------what else, rising property taxes!!!!
ReplyDeleteThank you, Mr Goldman...
http://pjmedia.com/spengler/2012/04/01/what-do-republicans-want/?singlepage=true
Hans: thanks for the link to the Goldman post, but if you read the fine print on the chart you will see that the "total" line does included property taxes.
ReplyDeleteAre you including educational debt? This is now a balloon.
ReplyDeleteStudent loans are not dischargeable in BK court.
ReplyDeleteJapanese household debt levels have been falling since the late 1990s, in yen.
ReplyDeletehttp://www.thoughtofferings.com/2009/09/mystery-of-japans-private-debt-levels.html
But Japan has also sustained about 15 percent deflation in that period, and an equal decrease in real wages, so perhaps Japanese households are not better off.
The yen has soared. The banks have abundant liquidity, and interest rates are zero.
Japan has reformed retail, work place and banking systems.
They have tried everything except what Milton Friedman told them to do: QE and print a lot of money.
BTW, USA policy is much the same as Japan's: Big fiscal deficits and tight money.
LIke Japan, we tried QE, it was successful, and then we stopped, even though real estate was still deeply depressed.
All the pieces of the puzzle are in place for a long secular rally----except Fed policy. They are still playing hide-and-seek, peek-a-boo. What will Fed policy be? A strong dollar (like Japan?). Higher interest rates? More QE? No one knows. Will they become like the Bank of Japan and fight inflation before all else?
We have regime uncertainty, as the Fed will not make clear its intentions.
Good luck with that.
Your Honor, (Mr Grannis) I plead guilty to being myopic!
ReplyDeleteThe benefits are temporal since interest rates will be rising and I suspect the taxman will continue to raid and plunder...