The Homa Files

In the 1960s and 1970s, consumer debt as a percentage of after-tax income averaged a bit over 60%.

Starting in the Clinton years – and gaining steam through the Bush years – the ratio doubled – as consumers took out easy money mortgages and credit cards.

The 2009 financial scare prompted a wave of debt-reduction, but it looks like the austerity wave is becoming passé.

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According to the WSJ:

The economy is likely to be stuck with at best subpar growth until the private sector’s deleveraging, or debt-shedding, process is complete.

Households have made some progress lately, but this still looks to be in its early stages.

While debt as a percentage of after-tax income has fallen from its peak, it remains about 120% — well above the 89% it averaged in the 1990s.

And, there are signs that consumers are even starting to borrow again:

• Consumer credit outstanding rose by $5.5 billion in April after a $6 billion increase in March.
• Student-loan debt is at record-high levels
• There has been an uptick in credit-card borrowing by cash-strapped consumers.

P.S. In Japan, deleveraging took the better part of 15 years.

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This entry was posted on June 9, 2011 at 6:01 am and is filed under Credit Cards, Debt - Deficit, Financial Services & Crises. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.