The American Interest
Analysis by Walter Russell Mead & Staff
Total US Household Debt at Lowest Level in Seven Years

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The US economy is showing some green shoots. Earlier we noted some data about falling credit card delinquencies. The WSJ piles on the good news: total household debt and bill delinquency is lower than any time since the start of the recession. More:

Total household debt, including mortgages, credit cards and auto loans, fell by $78 billion in the second quarter to $11.15 trillion, the lowest level since 2006, according to a report released Wednesday by the Federal Reserve Bank of New York.

The amount of bills 30 or more days late fell by $3.3 billion during the quarter, also reaching the lowest level in seven years.

The article traces this declining debt to the housing market. House values have gone up, allowing owners to profit from sales. Many Americans are also in a better position to pay down their mortgages.

This is good news. When it comes to the national debt, many pundits make the mistake of equating households with nations. The latter can handle a good deal of debt, but debt is a huge drag on the former, and we’re excited to see that US households are bringing some of their debt under control.

However, there’s still a lot of work to do, especially when it comes to student loans. As long as a college education remains both essential to securing a good job and increasingly expensive, student loans will continue to burden households. To build on all the good economic news, we need policy that can harness new technology to reign in student loans, health care costs, and other long-term drivers of debt.

[Image of piggy bank courtesy of Shutterstock]

Published on August 15, 2013 8:00 am
  • Jacksonian_Libertarian

    Declining debt levels isn’t a Green Shoot, instead it’s an indication of continued deflation and economic contraction. When the economy is expanding, levels of debt increase as consumers and businesses, buy and hire.

  • Kavanna

    And the deleveraging is nowhere near finished. The debt-to-income ratio needs to drop much further to get back to historical norms associated with good growth. The best estimates indicate that deleveraging is about half finished, and froth has reappeared in some areas (high-yield debt AKA junk bonds, real estate, stocks). The Fed is belatedly aware of it to an extent, but is still trying to stimulate the debt-driven growth model — it’s in a bind: it’s too much debt that got us into this mess.

  • Rick Caird

    Debt is debilitating. If someone has too much debt, the minute something goes wrong, it is difficult to recover.

    Debt reduction is a smart move. It is also a necessary move for an economy that is uncertain. For decades, we increased our GDP by moving demand forward via debt. That had to stop sometime and we are seeing that now.

  • Arch

    Right now money is so cheap, we decided to refinance our mortgage and got a 3.25 % APR loan that dropped my payment by over $500 per month. Yesterday, my wife’s 12 year old X5 died and she replaced it at 0.74% APR.

  • drkennethnoisewater

    How much of this deleveraging has been personal bankrupcy wiping out debt vs. actual saving of economic surplus?