Thursday, May 18, 2017

U.S. Household Debt Sets New Record

Remember back in 2006-2007 when everyone was buying Hummers, big houses, campers and extravagant vacations and putting it all on monthly payments because "the good times are here to stay!'?

Evidently, very few people remember that.....because it ended really poorly and now everyone is just repeating the same cycle.

But please note that even though this is a new record high in actual is NOT as high in relative terms as it was in 2008.

US Household Debt Surpasses 2008 High, Hits Record $12.7 Trillion

Total debt held by US household reached $12.73 trillion in the first quarter of 2017, finally surpassing its $12.68 trillion peak reached during the recession in 2008 according to the NY Fed's latest quarterly report on household debt. This marked a$479 billion increase from a year ago, and up $149 billion from Q4 2016 after 11 consecutive quarters of growth since the deleveraging period immediately following the Great Recession.

the quick and durty breakdown:

Total household indebtedness stood at $12.73 trillion as of March 31, 2017. This increase put overall household debt $50 billion above its previous peak set in the third quarter of 2008 and 14.1 percent above the trough set in the second quarter of 2013.

Mortgage balances, the largest component of household debt, reached $8.63 trillion as of March 31, a $147 billion uptick from the fourth quarter of 2016.

Balances on home equity lines of credit fell slightly in the first quarter, down $17 billion to $456 billion.

Non-housing debt saw mixed changes—an increase of $10 billion in auto loans and $34 billion in student loan balances, and a $15 billion drop in credit card balances.

Despite the new nominal all time high, on a relative basis, household debt remained below past levels in relation to the size of the overall U.S. economy, and in Q1 total debt was 66.9% of GDP, nearly 20% lower compared to 85.4% of GDP in Q3 of 2008.

Immediately following the 2008-2009 crisis, Americans reduced their debts to an unusual extent: a 12% decline from the peak in the third quarter of 2008 to the trough in the second quarter of 2013. New York Fed researchers, cited by the WSJ, described the drop as “an aberration from what had been a 63-year upward trend reflecting the depth, duration and aftermath of the Great Recession.”


"Yeah, but Dennis....this time it is different.  We can afford to make the payments on all that debt because everyone has really good jobs now and are making really good money....and back in 2007 that wasn't the case."

I remember that one phrase we are all supposed to watch out for while a bubble is building...."This time things are different."

Tell me if you have ever heard any of these in the last 20-30 years;

"Gold is always a great investment because it can't ever go down much in value."

"Put most of your money in real estate....because they aren't making land anymore!"

"Casino stocks are a for sure thing....because America's appetite for gambling is unquenchable!"

"You can't go wrong in a Dot.Com stock...because the Internet is doubling in size every 6 months and that's gonna continue forever!"

"Put most of your money in "Junk" bonds because you can't  go wrong on a 9% yield every year?"


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