One type of debt is down
Date posted: December 29, 2010
We all know about the dramatic rise in the national debt in recent years. In prior decades we also witnessed a big jump in private debt held by households. N.C. State University economist Mike Walden says this second type of debt changed directions recently.
“This has been amazing, and I don’t think it has gotten quite the attention it deserves. Household or also called consumer debt is down a whopping $800 billion dollars — $800 billion dollars — since its peak in September of 2008. We’ve never seen anything like this since we kept records on household debt, which goes back to the post-World War II period.
“The problem is that households during the recession saw their assets values go down. Many households have just been alarmed by the drop not only their stock assets but the value of their home. And so people’s assets can’t support the levels of debt they had prerecession. So people are doing the logical thing: They are paying down on their debt.
“They are actually saving more, too. The personal saving rate is up to 6 percent. So all of this is good.
“The downside, of course, to the aggregate economy — the macro-economy — is because we are a consumer driven economy, 70 percent of our economy comes from what consumers spend. And if consumers are paying down on debt — saving more — they are not spending. And if they are not spending, that means a slow-growing economy.”
Category: Economic Perspective