Household debt almost equals GDP
U.S. households are deeper in debt than the much-maligned federal government.
This post comes from Brian O'Connell at partner site MainStreet.
While the U.S. economic outlook is showing some scant signs of progress, the carnage left over from the financial downturn looks downright depression-like -- and particularly depressing to U.S. households.
A new report from the Federal Reserve (.pdf file) shows that American households are now sitting on $13.2 trillion in debt, and household net worth -- defined as the difference between assets and liabilities -- was down a staggering $2.4 trillion from the previous quarter.
Fed analysts say the decline in net worth was attributable to a decline in the value of financial assets, which fell 5.2% in the third quarter. A fractional drop in U.S. home values (0.6%) contributed as well. Total U.S. home values slid to $16.1 trillion, down from approximately $21 trillion in 2007, just as the recession began to generate some steam.
Monitoring household debt is akin to watching a train wreck in slow motion. The $13.2 trillion beats the $13.1 trillion in total government debt, or the $11.5 trillion in debt racked up by nonfinancial businesses in the U.S., the Fed reports.
In plain language, U.S. households are deeper in debt than U.S. businesses and -- stop the presses -- the much-maligned federal government.
Viewed through another prism, the $13 trillion consumer debt figure almost reaches the total GDP of the U.S., $15 trillion. And losing that $2.4 trillion in Q3 is similar to losing about 16% of total GDP, which would be considered a catastrophic depression in economic circles. Post continues below.
The trend in lost net income most likely started in 2007, when household net worth crested at $66.8 billion. But four years later, that figure has plunged to $57.4 trillion, the Fed reports.
So what's to blame? Americans certainly aren't making more money on the job, analysts say, and the drop in household income has caused families to raid their bank accounts and credit cards to pay for goods and services. But that trend may dissipate in the last quarter of 2011.
Gregory Daco, chief U.S. economist for IHS Global Insight, says as much.
"IHS expects a strong fourth quarter rebound in household net worth resulting mostly from a rally in stock prices," he wrote in a Dec. 7 research note. "This should provide some support to consumer spending as employment growth continues to make progress and consumers cheer up ahead of the holidays."
If consumers are really cheering over $2.4 trillion in lost household net worth, then someone better put down the eggnog.
The Great Recession, which in hindsight may have been closer to another Great Depression, has inflicted a world of hurt on U.S. households. And that pain is going to take some time to recover from.
More on MainStreet and MSN Money:
It's nice to not have so much as a dime of debt. No credit cards, no mortgage (renter) and both cars (an '08 and an '09) are paid for.
Blame the government, blame the banks...consumers are every bit as, if not more so, responsible for the recession as those entities. How can we expect the federal debt level to be reasonable when we can't get our own households in order?
As the saying goes, a population gets the government it deserves.
Gee I was reading for a while that people were paying down their debt. I guess they were lying.
A lot of surveys are like that. People don't say in those surveys what they are really doing. Only what they think is correct. I have suspected for a while that most people are using personal debt in the wrong way by paying for less then durable goods. Such as gasoline, food, and other quickly disposable goods. The trouble with that is those goods are gone or used up even before the credit bill comes. Let alone when they actually pay for them. So how much is that gasoline fill up or grocery run costing you?
Increased debt, lost value in home (asset) and declining real wages adjusted for inflation .. the Great Recession sounding more like the Great Depression deja vu. Congress and the Administration better cancel Christmas vacations and get busy correcting the fiscal policy, along with the Fed stimulating the monetary policy .. before the run on the banks and the hobo parade of the 1930's is the norm of the 2010's. Good paying jobs is the solution to the problem .. if there is any politicians awake in Washington DC.
"While the U.S. Economic outlook is showing scant signs of progress..."?
ARE YOU KIDDING ME???
Money partner (whoever you are), come on, get real! Every day I look on the news, and it shows for the most part the economy stagnant at best, sliding backwards at worst.
The majority if GDP is no longer "Product" It's actually financial jiggery-pokery which involves sliding 'chips' back and forth across the 'table' between the financiers and them collecting billions of dollars to do it.
If consumers are liable for believing the lies about how replacing wages with credit to maintain the middle class lifestyle that was shipped to china with their jobs.
Then anyone who has voted for these rat-baskets who deregulated the credit, insurance, and financial markets since 1980 is also responsible.
You were told, that when deregulated the markets that they would bring the system down around your ears. You were told that when you remove consumer protections, the banks and the insurance companies would abuse the people that are their 'customers' (when in reality they are viewed as raw materials to be extracted)
Think about that every time the guy you vote for votes against consumer protection.
"Nowhere are we to be in everyone's private lives, busn lives, or social lives"
Unless it involves a woman's right to choose or wiretaps without a court order or due process. GOP are big government lovers as well, they just take a different route to get there.
Also, it is stated that, "The trend in lost net income most likely started in 2007, when household net worth crested at $66.8 billion. But four years later, that figure has plunged to $57.4 trillion, the Fed reports." That should say $66.8 trillion.
"Nowhere are we to be in everyone's private lives, busn lives, or social lives. "
Nice to see another person that won't be voting GOP.
These facts are a little misleading.
If you bought a home back before the housing crash you are under water in that deal.
The way this article confuses me is assets - liabilities = net worth, so if your home shed about a 50,000 or even 100,000 dollars in value then your debt amount could go up. The article stated 16.1 trillion in homes value down from 21 trillion. Well there is technically 4 trillion in new debt and nobody used a credit card to do that, or signed a loan contract for that matter.
What isn't helping student loans either. The amount of student loans have gone up a lot, so I could see how this could be true.
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
ABOUT SMART SPENDING
Editor Bev O'Shea lives and works in the foothills of the Appalachians. A former copy editor for The Atlanta Journal-Constitution and the Orlando Sentinel, she joined MSN Money in 2007. She's a fan of sunsets, college football and free shipping, among other things.
Having worked as a writer, reporter and editor for more than 25 years, Editor Julie Tilsner is the sort of person who can't help but correct grammar in Facebook postings and on billboards. She's written for BusinessWeek, the Los Angeles Times, Parenting, Redbook, AOL and others. She lives in Los Angeles County with her family and loves to drink wine and practice yoga, although not generally at the same time.
A writer for MSN Money since January 2007, Donna Freedman won regional and national prizes during an 18-year newspaper career and earned a college degree in midlife without taking out student loans. She also writes about smart money tactics for magazines and on her own site, Surviving and Thriving.
Mitch Lipka has been warning people about scams and shining light on questionable business practices for more than 20 years. Mitch, the consumer columnist for The Boston Globe, has also been a reporter and editor at The Philadelphia Inquirer, Consumer Reports, South Florida Sun-Sentinel and AOL. He won the 2010 New York Press Club award for best consumer reporting online and was honored in 2011 for his reporting on child product safety.
Marilyn Lewis is an award-winning writer with a passion for getting readers clear, straight information that helps them stay out of financial trouble. A former reporter for The San Jose Mercury News, she works from her home in Port Townsend, Wash. Contact her at MarilynLewis@Outlook.com.
LATEST BLOG POSTS
These airlines have taken a la carte flying to a new level, charging for everything you can think of and then some.