Household Debt meets Corporate Debt

Households take on debt for a variety of reasons, such as financing education and purchasing a house. Household debt in the U.S. increased from 59% of GDP in 1990 to 98% of GDP in 2009, and many economists argue that the Great Recession was “Great” because household leverage was so high at the time. It has since declined steadily. In fact, in 2019, household debt and corporate debt were the closest they have been in nearly 30 years.

The New York Federal Reserve: Household Debt and Credit Report

Recently, I posted this article, “Americans: The Increasing Debt Balance”. It referenced the findings from the New York Federal Reserve’s report. Here is an excerpt directly from the New York Fed’s report:

“Household Debt Continues to Rise; Mortgage Originations Hit 14-Year HighThe CMD’s latest Quarterly Report on Household Debt and Credit reveals that total household debt increased by $193 billion, or 1.4 percent, to reach $14.15 trillion in the fourth quarter of 2019. This marks the twenty-second consecutive quarterly increase, with total household debt now $1.5 trillion higher, in nominal terms, than the pre-recession peak of $12.68 trillion, set in the third quarter of 2008. Mortgage originations rose by $224 billion, or 42 percent, in the fourth quarter of 2019 to reach $752 billion, the highest volume seen since the fourth quarter of 2005.”

The one of findings that makes for a strong concern is the number of mortgage originations. It’s difficult to take that figure and draw conclusions regarding the real estate market, but this number does create the need to take a sharp eye at the real estate market.
The overall household debt rising, in my opinion, shows that many households are attempting to maintain a standard of living in this hyper consumption Inflationary based economy.

Read the New York Fed’s report here:

Americans: The Increasing Consumer Debt Balance

An excerpt from the article, titled, “The State of the American Debt Slaves, Q4 2019“:

Consumer debt – student loans, auto loans, and revolving credit such as credit cards and personal loans but excluding housing-related debts such as mortgages and HELOCs – jumped by $187 billion in the fourth quarter 2019, compared to a year earlier, or by 4.7%, to a record $4.2 trillion, according to Federal Reserve data released Friday afternoon:

My Two Cents:

The concept of debt is amoral. Too many financial experts place a “bad” vs “good” label on financial products.(I will explore that in another blog). Debt can be used as leverage to obtain assets needed for a variety of reasons. In real estate, debt is used to acquire income producing property. Is debt “bad” in that instance? If one is not a real estate investor, let’s take the worker earning $50,000 per year. And they live in an area where public transit isn’t a viable option; is buying a car via a loan a “bad” thing?

The deeper issue isn’t if debt is “bad” or “good”, but more about why more and more debt is being used to acquire things. One of the reasons, in my estimation, is inflation. Albeit it’s not the only variable, but it plays a large part in this scenario. As the monetary base is expanded, the value of the currency declines, giving the illusion that prices of goods are rising. The amount of currency units to purchase that good has increased due to the declining value of the currency. Based upon this activity, consumers must work more jobs, and acquire more and more consumer debt to maintain a lifestyle.

Read the following: