The New Yorker's The Develeraging Myth states (at a high level) that consumers are not deleveraging because they are still spending:
Americans certainly have lots of debt, but the evidence that it’s killing the recovery is surprisingly sketchy. For a start, American consumers are not actually keeping their wallets closed. Real consumer spending, after collapsing in 2009, has risen for nine straight quarters; this past quarter it was up at an annualized rate of 2.4 per cent. That looks anemic by the standard of past recoveries, but, with an unemployment rate near ten per cent and wages barely rising, that’s to be expected.
EconomPic has explained how spending has remained strong in the face of lower income and higher savings here. More curious is why an article on consumer credit focuses on spending, rather than consumer credit.
Looking at the actual consumer credit data, we see that consumers (with the exception of student loans) have reduced consumer credit dramatically. Both revolving (mainly credit card loans) and non-revolving (excluding student loans) credit levels are back to 2004 levels. As a percent of GDP, the reduction has been even greater.
Note that in the chart above, federal non-revolving loans are assumed to be 100% student loans. Likely close, but I can't find specific details.
Source: Federal Reserve
Great chart Jake.
ReplyDeleteOn one hand the drop in non-student credit appears to be bottoming out, suggesting that the deleveraging might be coming to an end.
But it is alarming that student credit has increased so sharply. The increase in student credit is greater than each of the drops in non-student nonrevolving and revolving. It is almost as if the burden of deleveraging has been shifted onto students. Will these students be in the position to pay off their loans once they become due?
Student loan bubble will be next black hole, hopefully not too deep.
ReplyDeleteIn addition, a lot of the debt burden has been shifted to the public's balance sheet (the government borrows and transfers the balance to the private sector). The good news is the private sector (except students) are deleveraging and are in a better starting point in debt terms. The students are another issue...
ReplyDeleteJake said "In addition, a lot of the debt burden has been shifted to the public's balance sheet (the government borrows and transfers the balance to the private sector)."
ReplyDeleteThat's basically the same playbook that Japan tried in the 1990s (in Japan's case, it was with corporate debt). That strategy hasn't seemed to be all that effective for Japan, although not a complete disaster either. The missing ingredient seems to be growth (and inflation). Hopefully the U.S. can do a better job in sparking a recovery.