Deleverage post #5
Back in September 2008 I wrote this post on household deleveraging. Although I haven’t posted on this subject in a while it is clear that the trend continues.
In this morning’s WSJ this article is featured entitled “Drought of Credit Hampers Recovery“. In the article the authors explain that consumer debt (i.e. auto loans, credit cards, loans for recreational equipment) has fallen significantly since the collapse of the housing market and subprime crisis.
This is not a surprise as households cut back on spending and banks cut back on lending. But the article makes it sounds like this trend is a bad thing.
I guess it’s true that a reduction in consumer spending ultimately costs jobs. BUT, isn’t it also true that the levels of debt we saw during the boom, especially consumer debt which is “unhealthy” debt because it’s either unsecured or secured by a depreciating asset, was unsustainable?
If so, then is this really a bad thing? Call me old-fashioned but I tend to think that this is good news.
What are your thoughts? Has your household cut it’s debt in the last year? Tell your story in the comment section below.