Category Archives: US household debt

19/1/18: Tears over QE & U.S. Household Debt Problem


As (some) White House-linked (or favouring) economists lament the Fed's QE (and there are reasons to lament it), one thing is clear: the unprecedented monetary policies of the recent years have achieved two things:

  1. The Fed QE has fuelled an unprecedented boom in risky assets (bonds, equities, property, cryptos, you name it); and
  2. The Fed QE sustained a dangerous explosion of personal household debt
Which, taken together, means that the rich got richer, and the middle classes and the poor got poorer. Because debt is not wealth. Worse, the policies past have set the stage for a massive unraveling of the credit bubble to come, if the Fed were to attempt to seriously raise rates.

Note: the figures below are not reflective of a reportedly massive jump in consumer credit in 4Q 2017 (see: https://www.marketwatch.com/story/consumer-credit-growth-surges-in-november-by-most-in-16-years-2018-01-08?siteid=bnbh). 

Here is the latest data on personal household debt:

\And here is the aggregate data (also through 3Q 2017) from the NY Fed:

Year on year, 3Q 2015 growth in total household debt in the U.S. stood at 3.03%. This fell to 2.36% in 2016, before rising to 4.90% in 2017, the highest annual rate of growth for the third quarter period since Q3 2007.

Aggregate household debt in 3Q 2017, relative to 2005-2007 average was:
  • 11.8% higher in 3Q 2017 for Mortgages;
  • 23.4% lower for HE Revolving;
  • 51.9% higher for Auto Loans;
  • 6.6% higher for Credit Cards;
  • 201.2% higher for Student Loans;
  • 6.5% lower for Other forms of debt; and
  • 19.7% higher for Total household debt
In current environment, a 25 bps hike in Fed rate, if fully passed through to household credit markets, will increase the cost of household credit by USD32.4 billion per annum. The same shock five years ago would have cost the U.S. household USD 28.3 billion per annum. Now, put this into perspective: current markets expectations are for three Fed rate hikes (and increasingly, the markets are factoring a fourth surprise hike) in 2018. Assuming the range of 3-4 hikes moves to raise rates by 75-100 basis points, the impact on American households of the QE 'normalization' can be estimated in the region of USD98-130 billion per annum. Since much of this will take form of the non-deductible interest payments, the Fed 'unwinding' risks wiping out the entire benefit from the recent tax cuts for the lower-to-upper-middle class segments of population. 

Now, let's cry about the QE... 

19/5/17: A Reminder: Social Security is Only Getting More Insolvent…


On foot of my earlier post on U.S. household debt, it is worth mentioning another, much-overlooked in the media, fact concerning U.S. real economic debt crisis. This fact is a staggering one, even though it has been published a year ago, back in April 2016.

Based on the 2016 OASDI Trustees Report, officially called "The 2016 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds" (see link here: https://www.ssa.gov/oact/TR/2016/index.html).
  • U.S. Social Security's total income will exceed total cost of Social Security payouts through 2019. However, beyond 2019, interest income and money taken out of reserves will have to cover the funds required to offset Social Security's annual deficits until 2034.
  • Assuming the U.S. Presidential Administrations and the Congress continue business as usual approach to Social Security, the federal government payroll taxes will only be able to cover roughly 75% of scheduled retirement benefits until 2090
  • As the result, the Social Security Administration now projects that unfunded obligations will reach USD 11.4 trillion by 2090 or some $700 billion higher than the USD 10.7 trillion shortfall projected a year ago
  • Worse:  on an "infinite horizon" basis (netting Social Security expected future liabilities from forecast revenues) Social Security will face a USD 32.1 trillion in unfunded liabilities by 2090, or staggering USD 6.3 trillion more than 2015 projection
Chart below plots forecast Social Security unfunded liabilities corresponding to each forecast year:


The above clearly shows that the Social Security 'stabilisation' achieved in 2014-2015 is now not only erased, but is set back to what appears to be a rapid acceleration in liabilities back to 2008-2014 trend.

Yes, Social Security is a system in which people pay in taxes for an 'allegedly' ringfenced program that is supposed to supplement retirement. No, Social Security is not a program that is actually contractually ringfenced to provide anything whatsoever to those who pay into it. Which, really, means that the default on Social Security is looming large for the millennials and subsequent generations. And this raises the issue of what will happen to pensions provision across the entire U.S. Currently, even public sector pensions (across states and municipalities) are facing severe uncertainty and, in an increasing number of cases, actual cuts. Which raises public reliance on Social Security just at the time that the Social Security system is facing higher threats of insolvency. 

Meanwhile, household debt situation is getting from bad to awful (see this post: http://trueeconomics.blogspot.com/2017/05/19517-us-household-debt-things-are-much.html). 

The status quo is a prescription for a social, economic and political disaster. No medals for guessing what the Congress is doing about it all.

15/1/16: Household Debt Sustainability in One Chart?


Here is a neat chart plotting household debt against long term interest rates in an attempt to visualise property prices in affordability / sustainability context:

Source: @resi_analyst

Irish progression is poor by debt measure, and is sustained (barely) by low interest rates, even post-deleveraging.