Good News: Household Deleveraging Is Pretty Much Finished


Hale Stewart provides some reason today to be moderately bullish on the economy: the massive deleveraging that started when the recession hit has now pretty much run its course:

What started this recession was a massive build-up of debt in the system, largely related to the housing bubble. When the bubble burst, people had to sell the asset(s) underlying their debt, usually at a loss….This meant they had less money to spend on other items, meaning there was overall less economic demand, culminating in weak overall growth.

….Total household and non-profit debt, according to the Federal Reserve’s Flow of Funds report, has been dropping since a little bit before the recession began….Total household debt has been declining as a percentage of GDP since mid-way through the last recession….Household obligations as a percent of disposable personal income are at very low historical levels.

….Put in economic terms, the above charts show the “balance sheet” recession is close to ending.

There are still some underlying structural weaknesses in the economy that should keep anyone from getting too excited: employment is weak; wages are stagnant; automation is starting to become a real threat; deleveraging still has a ways to go overseas; and income inequality is back on the rise. Still, leverage was the core reason the 2008 recession was so severe and the subsequent recovery was so weak. The fact that household leverage is back to its historical average is good news for the future.

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THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

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