Record High Household-Debt Balances: What It Means

3 mins read


A report from the Federal Reserve Bank of New York finds that household debt balances have hit a record high. I summarize it in my latest Bloomberg column.

Household debt totaled $14.2 trillion in the fourth quarter of 2019. Overall last year, household debt balances increased by $601 billion, marking the largest annual increase since 2007. Households have been adding debt for 22 consecutive quarters.

Debt balances previously bottomed out in the second quarter of 2013. They are up 26.8 percent since then, and are 11.6 percent larger than their pre-Great Recession peak, set in the third quarter of 2008. Debt accumulated over the last quarter of 2019 through higher mortgage balances (up $120 billion from the previous quarter, to $9.6 trillion), auto loans, student loans and credit-card balances.

Many expressed concern. A headline in the Washington Examiner read: “Americans in Record Debt: It’s Our Own Fault.” A business website went with a more literary description: “The State of the American Debt Slaves, Q4 2019.”

I am more sanguine. Yes, debt is up — and yes, credit card debt is something to keep an eye on. But less than 5 percent of the record debt reported by the Fed is in any stage of delinquency. The chart above shows that the ratio of household net worth to disposable income is near record highs. And the average monthly personal savings rate has increased every year since 2016.

Indeed, the real puzzle is not why households are borrowing so much. It is why they are saving so much.

Check out my column for my full argument. Your comments, as always, are very welcome.





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