Debt in U.S. Households Returns

It took close to 10 years, but debt made a return to U.S. households.

Americans have borrowed more money now than during the height of the 2008 credit bubble that started the worldwide collapse of the financial system.

On Wednesday, the Federal Reserve in New York said that total household U.S, debt reached $12.7 trillion, a new high, during the first quarter of 2017, another milestone in the nation’s long and slow recovery of the economy.

The expanding debt level is an indication that many of the Americans that struggled during the Great Recession have repaired their individual credit sufficiently to qualify for new loans.

It suggests as well a rise in optimism about economic growth amongst banks as well as other types of lenders.

Debt fuels consumer spending, which represents close to 70% of all U.S. economic activity. It also gives Americans opportunities to make big investments in housing and education, which can help to build financial stability and personal wealth.

Yet the peak in borrowing is also a signal of a potential for risks to the U.S. economy. One of the biggest factors behind the growth in debt had been student loans. They are a mounting burden which can stifle growth in the economy through not allowing Americans to buy homes or to spend on large ticket items.

One of the biggest fears currently is that the growing debt from auto loans, credit cards and student loans could put endless numbers of Americans back into a big hole, prompting more defaults, similar to the ones that took place at the time of the mortgage bubble bursting 10 years ago.

One chief economist said the marker is not one to be super excited about. More debt on one hand is a sure sign of optimism, but the reality is families use debt as a way to pay for things that their normal income cannot support, added the economist.

Since the end of World War II, total debt in U.S. households has increased, with just a few interruptions. However, the huge financial crisis in 2008 changed the steady trend upward.

Last in 2008, household debt started to drop and continued for 19 straight quarters, a period that is unprecedented in which many people across the U.S. stayed away from any new borrowing.

Total debt started to rise once again during 2013 and finally reached its new peak during the first quarter of this year.

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