Household debt makes a comeback in the U.S.

https://www.nytimes.com/2017/05/17/business/dealbook/household-debt-united-states.html?_r= 0

It took nearly a decade, but debt has made a comeback.

Americans have now borrowed more money than they had at the height of the credit bubble in 2008, just as the global financial system began to collapse.

The Federal Reserve Bank of New York said Wednesday that total household debt in the United States had reached a new peak — $12.7 trillion — in the first three months of the year, another milestone in the long, slow recovery of the nation’s economy.

The growing debt level shows that many of the millions of Americans who struggled during the recession have sufficiently repaired their credit to qualify for loans. It also suggests a rising optimism about economic growth among banks and other lenders.

Debt can fuel consumer spending, which accounts for nearly 70 percent of all economic activity in the United States. It also allows Americans to make large investments in education and housing, which can help build personal wealth and financial stability.

Yet the borrowing peak also signals the potential for new risks to the economy.

One of the major factors behind the latest debt binge has been student loans, a mounting burden that can stifle economic growth by preventing Americans from buying homes or spending on big-ticket consumer items.

The fear is that ballooning debt from student loans — and from auto loans and credit cards — could put many Americans back into a hole, prompting a new wave of defaults, much like the one that accompanied the mortgage meltdown a decade ago.

“This is not a marker we should be superexcited to get back to,” said Heather Boushey, the executive director and chief economist at the Washington Center for Equitable Growth, a liberal think tank. “In the abstract, more debt signals optimism. But in reality, families are using debt as a mechanism to pay for things their incomes don’t support.”

Since World War II, total household debt had been increasing, with only a few interruptions. The financial crisis changed that steady upward march.

In late 2008, household debt began a decline that would last for 19 consecutive quarters, an unprecedented period of deleveraging during which many Americans shied away from new borrowing. Total debt began to rise again in 2013, finally hitting a new high in this year’s first quarter.

There is reason to believe that borrowers should be able to better manage their debt now than they did during the financial crisis. The nation’s debt load is reaching new heights at a moment when the economy is expanding, a dynamic that makes the latest peak in borrowing less worrisome to economists.

And households today are borrowing differently than they did nine years ago. Student loan debt, driven by soaring tuition costs, now makes up 11 percent of total household debt, up from 5 percent in the third quarter of 2008.

By comparison, mortgage debt is 68 percent of total debt, down from 73 percent during the same period. The household debt figures are not adjusted for inflation.

Student borrowers today owe $1.3 trillion, more than double the $611 billion owed nearly nine years ago. About one in 10 student borrowers is behind on repaying the loans, the highest delinquency rate of any type of loan tracked by the New York Fed’s quarterly household debt report.

The student loan market is nowhere near the size of the $8.6 trillion mortgage market, making student borrowing less of a threat to the global financial system than the bad housing loans that touched off the financial crisis in 2008.

But there are similarities in how student loan debt — like mortgage debt a decade ago — has managed to pile up.

———-

“The Federal Reserve Bank of New York said Wednesday that total household debt in the United States had reached a new peak — $12.7 trillion”

wow..thats a pretty big number..

“In late 2008, household debt began a decline that would last for 19 consecutive quarters, an unprecedented period of deleveraging during which many Americans shied away from new borrowing. Total debt began to rise again in 2013, finally hitting a new high in this year’s first quarter.”

a recovery built on having more debt..think about it..

401

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~ by seeker401 on May 22, 2017.

2 Responses to “Household debt makes a comeback in the U.S.”

  1. Lets say I am a teaching lecturer and can handle 50 students at 20 hours per week contact – so we could call this one man student year irregardless of subject.

    So give me a room that holds 50 students and charge them £3000 each

    Student income 50 x 3000 £150000
    Rent £10000
    Admin £20000
    My wages £60000
    Total expenses – deduct £90,000

    net contribution to central admin 60,000

    This could be non science subjects – but all these figures are very generous – so where does that £60k go ? – this is only one hypothetical class

    Research is a separate topic and would finance itself .

    Students are being charged more than double this which would mean a profit of £210,000 AND the classes are much bigger than 50 students

  2. Reblogged this on World Peace Forum.

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