Households cut debt, have long way to go

December 10, 2009

U.S. households are slowly repairing their (private) balance sheet. We’ve a long way to go, but according to the latest Flow of Funds report, we’re making progress.

See the chart below

household debt slide

As households and businesses cut debt, governments (state and federal) are adding debt to soften the blow. The good news appears to be that consumers are de-levering faster than the government is re-levering, a figure I’m trying to nail down at the moment.

More soon….

4 comments

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Well there is cutting debt by paying it back and then there is cutting debt by declaring bankruptcy or defaulting on your mortgage. The latter method results in a loss to someone else so I’m not sure that is a net plus for the economy.

If defaults and BKs are counted as debt reduction in this chart then what we may have is some people being kicked out of the credit finance system and others still gorging on debt with those being kicked out narrowly winning over those still borrowing.

Posted by sangellone | Report as abusive

I might add that there is a lot of household debt owed to non financial institutions such as utilities that is likely
not included in the Feds data base. It can be pretty substantial too, over $1000 per customer is not uncommon.

Posted by sangellone | Report as abusive

That doesn’t look bad at all when you consider that if I understand this right, you are comparing debt to disposable income. How does the chart look when debt is compared to gross income? While we have little debt to income I would gladly take on more if I were certain that lenders would leave my rates alone. Not including our car loan our debt to income ratio is a mere 2.5%, with the car loan figured over the remaining loan period we are almost at 6% debt to income. When compared to disposable income you surely can make the stats look bad and I suppose this keeps up the negative flow of information to keep people in fear.

Posted by J Wise | Report as abusive

[...] Households cut debt, have long way to go–Household debt continues to contract at a rapid rate, yet based on historical trends the debt to disposable income ration remains at an elevated rate. [...]

Bottom line: debt is slavery. My wife and I live with such peace of mind because we have zero debt. We paid our house off early and buy used cars, cash, and drive them for years and years. It looks like most people cannot distinguish between needs and wants as evidenced by that ratio above.

Posted by Lyle | Report as abusive

[...] Debt and consumer income in U.S. (Rolfe) [...]