>I've been wondering about these numbers. On the one hand, they seem
>high. But on the other hand, the average personal debt has recently
>eclipsed yearly income -- which SOUNDS scary, but isn't this just an
>artifact of increased home-ownership? I don't know about you, but
>almost everyone I know who owns a home has personal debt that FAR
>outstrips their yearly income.
>
>I mean, like, so what? So more people are in that boat. Something like
>2/3 of households own their home, so why should it be
>surprising/alarming that these numbers are so high?
The $1.7 trillion figure I just cited excludes mortgage debt.
The aggregate numbers aren't necessarily a problem in themselves. But the averages are almost certainly driven by a minority of heavily indebted households - tomorrow's bankrupts. That means lots of distress for those involved. The macro danger, though, comes when debt goes into reverse - when, after an expansion of credit-fueled consumption, people turn prudent and there's a strong risk of implosion. That's one reason why the economy of the early 1990s was so stubbornly stagnant.
Mortgage debt is a bit different. According to Fed estimates, cited in a speech the other day by Greenspan, something like $700 billion in mortgage equity withdrawals were injected into the U.S. economy via cash-out refinancings, home equity loans, and capital gains on house sales. (The first two increase the owner's debt; the cap gains result from the buyer's mortgage. All three increase the stock of mortgage debt.) That's more than twice the growth in personal consumption last year - in other words, consumption was more than sustained through a weak economic year by mortgage debt, and that increase in debt depended on assumed continuing price appreciation. If prices stop rising, these decisions will look rather bad. Greenspan says there's no housing bubble, but his record on diagnosing bubbles isn't encouraging.
Doug