Submitted by Taps Coogan on the 11th of March 2019 to The Sounding Line.
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A number of recent articles have warned about the rise in US credit card debt (and revolving credit) since the Financial Crisis. Revolving Credit, which includes credit card debt, now stands over $1.05 trillion, higher than its peak of $1.019 trillion in early 2008.
While that may sound ominous, keep in mind two things. First, the US population has expanded from 301 million at the end of 2007 to 325 million by the end of 2018. Second, due to inflation, $1 at the end of 2007 is the equivalent of roughly $1.21 today.
Apply those two factors and the rise in revolving credit becomes somewhat less worrisome. At the end of 2007, per capita revolving credit in today’s dollars was roughly $4,024. Today, revolving credit is roughly $3,228 dollar per capita. In inflation adjusted terms, per capita revolving credit has declined 20% compared to the eve of the Financial Crisis.
Similarly, revolving credit has declined significantly relative to the economy, reaching roughly its lowest levels since the mid 1990s.
Furthermore, delinquency rates have plummeted since the Financial crisis and, despite rising modestly since 2016, are far below levels seen at any point from 1991 to 2013.
In fact, it is not just revolving credit that has improved. Overall household debt, which includes mortgages, student debt, auto-loans, consumer debt, and revolving credit has followed the same trend. Although absolute levels suggest record high debts, adjust for population and inflation, and the picture looks better. At its peak at the end of 2008, per capita household debt was roughly $48,737 in today’s dollars. Today, household debt is roughly $41,466 per capita. In inflation adjusted terms, per capita household debt has declined 15% compared to its peak during the Financial Crisis.
Household debt has declined by nearly 20% relative to GDP since 2008
The interest expense on household debt, relative to disposable income, is the essentially the lowest on record.
It is true that household debt and certain types of delinquency have risen in recent quarters, and for certain zip codes and segments of the population that poses real challenges. Household debt levels are still high and debt and delinquency rates need to fall even further. $41,466 per person in the country is still a mountain of debt. Nonetheless, the reality of the situation, as the charts and figures above lay bare, is different from the narrative in much of the press. This is not what a major housing bubble looks like. Not yet at least.
There are lots of very worrisome trends in the global economy. The modest real deleveraging of US household’s isn’t at the top of the list.
To see which countries have the largest housing bubbles, read here.
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