In 2007-2008, the international financial system collapsed. Ten years after the great financial crisis, debt is making a comeback in the American household. Most of the consumers in the country have borrowed more than they did during the 2008 crisis. According to the popular Federal Reserve Bank, household debts in the United States currently stand at a new height of twelve trillion. The nation is always working on economic recovery.
What can we learn from the growing debts?
According to recent studies, the growing debt level has occurred due to many reasons. First of all, millions of citizens who were experiencing hardships during the financial crisis have managed to repair their credit so that they can qualify for new loans.
The growing debts also indicate that most of the banks and other lending institutions are optimistic about the nation’s economic growth.
Where did the Problem Start?
Household debt has been on the rise since the Second World War. However, there have been interruptions. After the financial crisis, the debts started to go down, and this lasted for about nineteen quarters. In these consecutive quarters, most Americans chose to stay away from borrowing. This trend did not last for a long time. The debts started to rise again in 2013, making a new peak this year.
Why Economists are not worried
Economists say that American borrowers should now have the ability to manage their debts better than the way it was done during great recession. The current nation debt has reached a new peak at a time when the economy is notably expanding. This significant borrowing is not worrying the experts because they believe that the economy will be in the right direction soon.
Most of the American households are borrowing in a unique and different manner compared to what they were doing more than a decade ago. Student debt is going up due to increasing tuition cost, and they currently make up for eleven percent of total debt. During the financial depression, student debt was only five percent of the total household debts.
When comparing the two situations, it is evident that the mortgage debt is currently sixty-eight percent of total debt. The debt was seventy-three percent during the financial recession. This shows that the new debt peaks cannot result in inflation.
Student loan debts currently accounts for more than $1.3 trillion. This is considered to be over two times amount that was owed ten years ago. A study shows than one in every ten graduates is lagging behind when it comes to repaying their $10,000 credit loans. This is rate is considered the highest rate in any loan that was registered by the prestigious New York Fed’s quarterly debt survey.
Economists have also stated that the current student debt market is completely different from the $ 8.6 trillion financial crisis market. This means the student taking the loan should not be a threat to the international financial system. There are very few things that are similar in the mortgage debt that had occurred a decade ago and the current student loan debt.
Student debt loans
Student loans have played a huge role in the debt binge. According to financial experts,, the graduates who are still paying the student loans cannot experience financial growth. These important people cannot participate in the advancement of the economy because they aren’t able to purchase new homes or buy large ticket items. Spending assists in the advancement of the economy, yet the graduates cannot afford to do it.
Student loans are not the only debts in the country. Economists now fear that the debts arising from credit cards and car loans are returning the Americans into a hole. These experts say that there is a risk of getting a new wave of defaulters who will bring a situation similar to the mortgage meltdown that happened almost ten years ago.
Debts play a crucial role in consumer spending.
At the moment, consumer spending is believed to account for over seventy percent of America’s total economy. The debts allow the citizens to make significant investments in important industries such as education and housing. Investing in these areas is crucial because it plays a primary role in financial stability.
Although borrowing is paramount for the American citizens, experts say that the new peak signals some great risks for the economy of the nation.
Heather Boushey Advice
Heather Bushey is currently the chief economists and executive director at the prestigious Washington Center for Equitable Growth. People who know him say that he is one of the most respected liberal think tanks in the country.
According to Heather, the new debt peak should not excite any citizen. The economist says that more debts in any nation signify optimism (theoretically). However, in real life, most of the families in the nation are using these debts as a way of purchasing expensive things that their salaries cannot support.