« Visa for Life | Main | Credit CARD Act of 2007 »

One to Lie Awake at Night About

posted by Bob Lawless

At the end of 2006, there was $12,588,200,000,000 outstanding in household debt -- defined as consumer debt and mortgage debt combined. But there was only $11,065,500,000,000 in personal income for 2006. (Those are trillions of dollars.) If the United States spent none of its personal income for one year on "trivial" things like food, shelter, taxes, and medical care, it would still be inadequate to pay off our car loans, home mortgages, credit cards, and other personal indebtedness. This was not true as recently as 2003.

Source: U.S. Federal Reserve and the U.S. Bureau of Economic Analysis.


Trickle up.

Sorry for being naive but what is the implied meaning of this? Is this very unusual?


Joseph, your comment is not naive at all. It is a good question to my rather opaque post.

This is just a way to think about the amount of outstanding household debt. Household debt has been a steady and continuous rise since WWII, and it helps to have ways to put the amount of debt in perspective. The explosion of household debt is one of the top transformative changes in American society during our lifetime. In 2004, we crossed the line where one year of personal income would not pay off the total household debt. That is an incredible amount of debt.

Why compare debt to the amount of income? Consider there are basically three general pots to which we can devote current income: current consumption, savings, or repayment of past obligations. As past obligations become larger, the pressure to cut current consumption or savings grows. We already have seen a decline in the savings rate. Start thinking about what happens to the economy if the crushing amount of household debt causes American consumers to cut back on current consumption. There is something that will may you lay awake at night -- well, that and too much coffee.

How much of the rise in debt is because of mortgage debt and how much is unsecured debt?

Am curious as, thinking about the figures, i think it would be more of a concern (say) if that debt was mainly unsecured loans and only a fraction was mortgages. But, if the vast bulk was mortgages, then this would be (hopefully) less concerning as mortgages are designed to be paid off over 20-30 yrs and not just from 1yrs income.

I couldn't pay off my mortgage with one year's salary... I don't know many people that could. I have plenty of income to pay one year's worth of payments on that same mortgage though.

Want to know why the US nearly always has such an amazing economy? It Never Stops Spending. This country doesn't save a Thing. We pour all our money into the economy with things bought and sold. Money burns a hole in Americans pockets.

But if we were to save all our money the economy would come to a dead stop for a while because no one would be making any profit. It's a catch 22. I'm a reformed spender, I save much much more now.

At this point in my mortgage, I could pay it off with one year's gross income and have a slight bit to spare. But of course, that's entirely unrealistic.

How do they distinguish between mortgages held by the homeowner and mortgages held by investors? About a quarter of mortgages on single-family properties are held by investors.

Also, does this include student loans?

The comments to this entry are closed.


Current Guests

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.

News Feed



  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.