According to statistics from the New York Fed, U.S. household debt now totals $11.4 trillion. Mortgage debt accounts for the vast majority of borrowing — 71%, to be specific — with most of the remainder split among auto loans, student loans, credit card debt, and home equity lines of credit. Click here for the full report.
First, the good news: the overall trend is moving in the right direction. Total consumer indebtedness has dropped $1.08 trillion (8.6%) since its peak in late 2008. At the time of the financial crash, household debt was roughly equal to GDP; now, it is around 90%.
And the bad news: household debt is still around 90% of GDP. By historical standards, the U.S. households are still way, way overleveraged. Not only does this place extreme financial pressure on individuals and families (which can take a serious emotional and physical toll), but from a macroeconomic perspective, it increases the likelihood that the recovery from our economic troubles will be a long, difficult slog.
In 1982, during the last recession that saw unemployment above 10%, the household-debt-to-GDP ratio was roughly half of today’s rate. People could spend extra money from wages or tax cuts on consumption instead of using it to pay down their mortgages. Before today’s households can start pumping money back into the economy, they have to get out from under their crippling debt overhang. (Read here for steps I propose that the Fed take to alleviate debt and boost spending.) Until that happens, get used to slow growth and high economic misery.