Americans have now borrowed more money than they did at the height of the credit bubble in 2008, just as the global financial system began to fall apart.
The Federal Reserve Bank of New York said Wednesday that total household debt had reached a new peak $12.7 trillion in the first three months of the year, another milestone in the long, slow recovery of the United States economy.
The growing debt level shows that many of the millions of Americans who struggled during the recession have sufficiently repaired their credit to qualify for loans. Italso speaks to growing optimism among banks and other lenders about economic growth.
Debt can fuel consumer spending, which accounts for nearly 70 percent of all economic activity in the United States.
This is not a marker we should be superexcited to get back to, said Heather Boushey, executive director and chief economist at the Washington Center for Equitable Growth, a liberal think tank. In the abstract, more debt signals optimism. But in reality, families are using debt as a mechanism to pay for things their incomes dont support.
Student loan debt, driven by soaring tuition costs, now makes up 11 percent of total household debt, up from 5 percent in the third quarter of 2008.
By comparison, mortgage debt is 68 percent of total debt, down from 73 percent during the same time period.
Student borrowers today owe $1.3 trillion, more than double the $611 billion nearly nine years ago. About one in 10 student borrowers is behind on the loans the highest delinquency rate of any type of loan tracked by the New York Feds quarterly household debt report.
It is not an existential threat to households and the economy, Mr. Zandi said. It is an area where there is some stress.
More broadly, the economic picture looks much less precarious than it did in late 2008. The amount of monthly income that Americans have to spend paying down their debt is smaller, and employment is flush.
Having seen the devastation that the mortgage collapse inflicted on the economy, Ms. Swonk said she was surprised it took so little time for borrowing to return to its peak.
Given how hard our credit machine was hit, you would expect it to take even longer to restore, she said.
tl;dr - Debt is good if managed well. It can drive the economy. Problems occur when people outspend their means. Biggest issue is with people spending six figures on college degrees.
Source:
https://www.nytimes.com/2017/05/17/business/dealbook/household-debt-united-states.html?_r=0