In the Federal Reserve’s latest version of its Household Debt and Credit Report for the third quarter of 2017, we can clearly see how the hard lessons taught by the Great Recession have, for the most part, pretty much been forgotten by the American public.
Here is a graphic showing what has happened to aggregate household debt levels since Q1 2004:
Mortgage balances are the largest component of household debt and stood at $8.47 trillion on September 30, 2017, $52 billion or 0.6 percentage points higher than the previous quarter.
Here is a breakdown of non-housing household debt:
Non-housing debt balances have been increasing for the past six years, rising by $68 billion in the third quarter of 2017 alone. On a quarter-over-quarter basis, auto loans grew by $23 billion or 1.9 percent, credit card debt grew by $24 billion or 3.1 percent and student loans grew by $13 billion or 1.0 percent.
Let’s look at debt delinquency rates for six types of loans/debt:
On an aggregate basis, it is interesting to see that Americans as a whole are now more indebted than they were during the Great Recession. It appears that the Federal Reserve’s “monetary medicine” of near-zero interest rates has worked its magic on the economy; consumers have been lulled into spending like there’s no day of debt reckoning. While current debt delinquency rates look relatively healthy for the most part, the current household debt reality is a house built on sand. When interest rate increases really take hold, millions of American households that have basically no savings will find themselves living like it’s 2008 all over again.
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