I received the following from an financial advisor I know: "Thinking on our conversation yesterday and reading this excerpt below during my morning research, I thought it was a respite of good news(albeit maybe good news down the road): Debt service ratio continues its descent The household debt-to-service ratio continues to decline, falling to 11.09% in Q2 from 11.24% in Q1, the lowest level since 1994. For much of the last two decades, American households spent more than their income, borrowing more as a result. One consequence of borrowing is allocating more of the household budget to paying down mortgages, credit cards and other debt. Once the recession came, Americans put an end to that process, and the debt-to-service ratio fell sharply. Now, part of this decline is a function of people simply walking away from underwater mortgages. However, holding aside these strategic defaults, consumers have also been reducing their debt at a pace not seen in over a decade. At the margin, spending less on debt service, means more left over for discretionary purchases. Hopefully, consumers are slowly getting their fiscal house in some sense of order, and more so that they wont have short memories as things improve." So, do you think people are actually learning that living on borrowed money doesn't work or if they get a good job again will they go back to living large despite the debt?
I believe a big chunk of that lower debt has come from write offs. But it is typical that when times are good, people think they'll continue being good, and are more apt to spend freely. When times are bad, people think they'll continue being bad, and so they constrict their risk exposure. It's part of the psychology that drives booms and busts.
No, but I bet you can find one. It was an email and we were just chatting about the economy. I think part of the lower debt is people who no longer have credit cards. I really hope some people are learning that you can't live on credit.
wow, imagine if actually saving money rather than spending became popular. What would it be like to buy something with capital rather than credit?
It wiuld at least reduce the economic nationalism that increasinly inflicts on American perceptions over trade
Private Sector America is engaged in the largest payback of debt ever seen in the history of the USA. This has been confirmed for at least the last year. It's one of the largest anchors holding back the recovery. As long as Americans are still paying debt that was spent years ago, new spending for products in the here and now will just have to go unbought on store shelves. America probably won't see a big expansion of consumer spending for at least another 5 years while American households that are able to, pay off their credit cards, personal loans and other short term debt. It may suck now, but I think once the payback is complete, individual households will be stronger than before.
