Monday, August 15, 2011

The Ongoing Deleveraging of American Households

The chart above is an update of related CD posts in May (here and here), showing the ongoing deleveraging of American households.  

In the first quarter of 2011, household debt service for required payments on outstanding mortgage and consumer debt as a share of disposable personal income fell to 11.51%, the lowest ratio since the second quarter of 1995; and the ratio for all household financial obligations (adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance and property tax payments to the debt service ratio) fell to 16.4%, the lowest ratio since the third quarter of 1994. 

Now if we could just get Congress to engage in the same deleveraging behavior, and get the national debt and spending under control.  

Update: Note that the monthly personal savings rate was 5.4% in June, and the monthly average since January 2010 has been above 5% (5.2%), which is back to savings rate that prevailed in the mid-1990s (see chart below). 


At 8/15/2011 10:09 AM, Blogger P.K. said...

"Now if we could just get Congress to engage in the same deleveraging behavior, and get the national debt and spending under control."

Good luck with that. Take a look at just one firm, Lockheed Martin, and see where its tentacles reach within the government. Want to get rid of the departments of energy, education, EPA, etc., too bad. From 2001-2009, LMT had contracts worth $22 billion with Dept. of Energy, $862 million with HUD, $766 million with Dept. of Education, $698 million with EPA. (Here’s the list, sorted by year in the upper right --

I’m sure that whichever party is in charge in Washington, LMT makes sure to “invest” millions in all the proper politicians that will keep it riding 1st class on the big gubmint gravy train. Ya think they’re the only ones on the train?

At 8/15/2011 10:17 AM, Blogger morganovich said...

i am left wondering what this would look like if you took out mortgage defaults.

losing your home is not really the same as deleverageing by paying down credit card debt, but is indistinguishable in this number.
if there have been 3 million foreclosures at an average of $250k, that would be $750bn in defaults which would reduce US consumer debt 5% right there, accounting for nearly 2/3 of the drop from 19% to 16%.

seems to me it's default driving this, not disciplined deleverageing.

add in the rate drops and loan restructuring, and you can likely account for 80%+ of this decline.

At 8/15/2011 10:28 AM, Blogger juandos said...

Well you've stated the problem haven't you?

Without these constitutionally questionable federal departments around to award extorted tax dollars there wouldn't be a problem...

Consider the waste of tax dollars for this collection of federal programs...

Thanks for the link BTW...

At 8/15/2011 1:46 PM, Blogger morganovich said...

back in the 90's people were talking about personal savings being too low.

a return to that level is just recovery from our amazingly low savings in the last decade.

5.4% is not a high savings rate.

At 8/15/2011 6:07 PM, Anonymous Anonymous said...

"5.4% is not a high savings rate."

Somewhere between 13% and 17% is the new suggested savings rate for defined contribution retirement plans, and that's only if you start saving before you are 30-years-old (Source: EBRI).


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