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Deleveraging Is Over

posted by Alan White

An unsustainable run-up in consumer housing debt and other debt was a fundamental structural cause of the 2008 global financial cScreen Shot 2019-02-26 at 11.59.42 AMrisis. Following four years of painfully slow decline, total U.S. consumer debt has now risen back above its 2008 peak, with the growth led by student loan and auto loan debt. Mortgages outstanding are not quite at their 2008 levels, but student loan and auto loan growth more than makes up for the modest home loan deleveraging. Americans are back up to their eyeballs in debt, but now some of the debt burden has shifted from baby boomers to millennials. While the cost of health care may be a key electoral issue for the over-50 crowd, under-40s will be listening for policymakers to offer solutions on student loans.

Comments

Yes, but how much has the adult population grown since 2008? If you dig pretty far into the NY FED data (see https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2018q4.pdf, page 32), there is one per capita chart. The graph is very cluttered, but the national average per capita line looks a lot flatter. I'd like to see per household data too.

I concur that while consumer debt loads are at 2008 levels, that ten-fold increase in student loan debt could prove even more problematic in the event of a future recession. At least with mortgage debts, one could file for Ch. 7 relief and walk away or file Ch. 13 and cure an arrearage over time. But bankruptcy offers no relief, and extremely limited repayment options, for student loans. They are true zombie debts in that they never die, they never go away, and they never stop coming for you.

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