Household Debt – How Bad Is It?
The primary drag on economic recovery is the sheer size of US household debt. It will take many years to bring the averages down. The following excerpt tells us a lot:
“From 1952 to 1979, the average ratio of household debt to gross disposable income was 57%, but over the past three decades the averages steadily, and then dramatically, climbed higher. In the 1980s, it averaged 69%; in the 1990s it averaged 84%; but then the housing boom hit in the 2000s and the ratio skyrocketed to an average of 112%. The ratio ultimately peaked in Q3 2007 at 127%, right before the onset of the recession.
While the household-debt-to-disposable-income ratio has come down to 113%, there is still a way to go to reach the lower levels of the 1980s or ’90s. Given the level of gross disposable income at the end of Q1, overall household debt would need to fall another $3.4 trillion to match the average debt-to-disposable-income ratio of 84% from the 1990s.”