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Household debt almost equals GDP

U.S. households are deeper in debt than the much-maligned federal government.

By MSN Money Partner Dec 12, 2011 1:41PM

This post comes from Brian O'Connell at partner site MainStreet.


MainStreet on MSN MoneyWhile 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:

Dec 12, 2011 3:57PM
I really thought Americans were saving more.  It may be that there are so many who were overextended when this started that they can't do anything else.  The biggest issue to me is that raids on savings and 401Ks don't show up as debt.  
Dec 12, 2011 4:22PM
With the skewed distribution of wealth in this country, this fact is not surprising.  The morally and fiscally deficient "leadership" provided by the Washington, DC looters also sets a bad example for the country, in general, but also has set a flawed precedent for everyone in politics, from your local alderman, county commissioner to governor.  The judicial system is so corrupt that it is surprising that any of these looters ever gets brought to justice.  The costs to the individual taxpayer for bailing out a bunch of irresponsible, looting, usurious bankers has been phenomenal.  As a result, the buddy system in Washington has resulted in a banking program that is failing, despite the fact that you only receive about 1% on your savings and pay about 30% on loans.  How can this disparity be justified?
Dec 12, 2011 4:07PM

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.

Dec 12, 2011 3:59PM

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?

Dec 12, 2011 4:36PM

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. Sarcastic

Dec 12, 2011 4:46PM
US household debt should be thousands of times the Fed debt.  The Federal govt has no busn getting into any debt.  It is not a household.  It does not invest.  It has no business consuming.  It is supposed to govern.  It should have a budget of less that $400 Billion/yr.  Look at the enumerated powers.  Nowhere are we to police the world.  Nowhere are we to be in everyone's private lives, busn lives, or social lives.  The constitution provides for limited govt., on the theory that the govt is to serve the public, not vice versa.
Dec 12, 2011 4:32PM
The moral to this story is for all families to cut spending and to rathole as much as they can into savings!
Dec 12, 2011 5:01PM

"While the U.S. Economic outlook is showing scant signs of progress..."?




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.


Dec 12, 2011 4:46PM

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.

Dec 12, 2011 5:06PM

"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.  

Dec 12, 2011 5:17PM
Hmmm, last I checked US gov't debt was sitting at $15.1 trillion... not $13.1 trillion. Where did you get that figure?

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. 

Who edits this crap?
Dec 12, 2011 5:04PM
The fact that citizens have to pay outrageous taxes for exorbitant govt spending causes families great hardships and requires families to borrow money just to make ends meet.  The American family lives less well and has to borrow money to make it because of the tax burden.  Shame on the author for attempting to exculpate Uncle Sam.
Dec 12, 2011 4:53PM
america is 70% consumer spending dependant economy that put another way is big markiting to find ways to make you spend more than you earn only those educated to know that its not in your best interest to listen to big marketing will be able to keep their house in order and that is a small few its big markitings job to keep you in the max debt its your job to not allow that thats what we call the free market your free to say no to big markiying
Dec 12, 2011 5:42PM
Andrew,  yes 15 trillion 64 billion and change.  the idea that stocks are going to increase net worth  is a joke.  housing prices will continue to drop.   so much reo inventory at present low demand stringent lending practices will only hurt the economy.  there is nothing in place to move the economy forward.   when job numbers drop jan feb with all xmas help getting let go we will right back in the same place.  all these articles are full of spin and lies.  This country has a spending problem not a revenue problem    look up what we were spending five years ago and in 2010.  generating a lot more money in revenue us treasury taxes but spending out of control.   we do not generate the money to spend over three trillion a year.  
Dec 12, 2011 4:57PM
SurfinRI .. good thing you didn't want a thumbs down on Congress re-election .. otherwise my thumb nail would have got stuck in the center of the earth.Thinking
Dec 12, 2011 4:49PM

"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.

Dec 12, 2011 5:12PM
Usury prohibited in Christianity and money lenders at work here full force.  Our dollar bills instead of stating "In God We Trust" may as well state "In Money Lenders We Trust".
Dec 12, 2011 7:35PM
The federal govt's income comes from the households in the article.  Most households get their income from productive employment.  The federal govt's debt actually belongs to the households, so don't be catty referring to the "much maligned" federal government.  The govt also continues to borrow 40% of every dollar it spends while households must earn their income--often in spite ot the government.  And for the record, ewent, the shipping of jobs overseas are a bipartisan effort.  You are the one playing the blame game.  Also, if the American consumer, including myself, were willing to pay higher prices and "buy American", jobs would not be sent overseas.  Instead, we all complain because the jobs are outsourced and really scream when our bills go up at WalMart.
Dec 13, 2011 2:08PM
The carryover of the Bush/Cheney economic policy of "trickle down" and give to the wealthy  has crushed Americans and the Republicans continue to pursue these same economic disasters.  Take the idle money from the wealthy and use it to rebuild America, rebuild our schools and education system, and stop spending Trillions on defense contractors.
Dec 12, 2011 5:02PM

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.

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