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The United States has a total resident population (as of January 23, 2017) of 324,420,000 people (about 324 million). Source: https://en.wikipedia.org/wiki/Dem

The United States has a total resident population (as of January 23, 2017) of 324,420,000 people (about 324 million). Source: https://en.wikipedia.org/wiki/Demographics_of_the_United_States https://en.wikipedia.org/wiki/Demographics_of_the_United_Sta... Thus, $4.1 trillion in consumer debt works out to $12,638 per person. The Gross Domestic Product (GDP) in the United States was worth 18036.65 billion (about $18 trillion) US dollars in 2015. That is about $55,424 per person. Note that the "consumer debt" is divided into several categories. Student loans represent a long term investment and may be reasonably paid off over decades. Auto loans are typically paid off in 3-5 years. Ideally, credit card debt should be paid off immediately. It is difficult to evaluate credit card debt because credit cards have increasingly become the substitute for cash in the United States. How much of the debt is extremely short term and essentially represents what used to be cash transactions? What is "other" consumer debt -- payday loans? IOU's? The point is that $4.1 trillion in consumer debt in a nation with over 300 million people and a GDP over $18 trillion per year is neither unreasonable nor a crisis, particularly when that debt includes longer term items such as auto loans and student loans.

TheOtherHobbes 10y ago
Other consumer debt includes mortgages. I'm sure there were people making similar arguments about the health of the US economy before 2008. http://inflation.us/wp-content/uploads/2015/04/niareport84.jpg http://inflation.us/wp-content/uploads/2015/04/niareport84.j...
- mcguire 10y ago
  Both of these statements are true.
mathattack 10y ago
Yes. If anything, the bigger issue is national debt. It can be broken out into investments versus borrowing for transfer payments, but either way the #s come out much higher. And it's easier for consumers to walk away from debt in a bankruptcy than it is for a country.
- rootusrootus 10y ago
  That is a difficult comparison. If all of my debt was denominated in a currency that I explicitly controlled the supply of, I wouldn't need to declare bankruptcy, I'd just increase the supply of money so I was solvent. At this time, the cost to the nation of servicing the debt is around what, 6 percent of income? I bet a lot of consumers (more than half) would find that to be very affordable.
  - mathattack 10y ago
    Yes - interest rates on our debt is low. But increasing the money supply will eventually come with inflation, and with that higher interest rates. Eventually people will stop lending countries money. If they don't - that's even scarier. (A lack of viable investment alternatives)
dpweb 10y ago
The important thing really is the financial fragility of the American household. Millions of people know that they are one unexpected event away from insolvency. GDP doesn't mean anything to them. Consumer debt just puts them more at risk.
- runeks 10y ago
  Also, the more indebted the consumer, the higher the impact of rising interest rates on consumer spending. Every time the Fed raises rates by 0.25 percentage points, consumers need to pay an additional $10B in interest per year. Consequently, the rate of interest increasing by 1 percentage point today is not the same as it increasing by 1 percentage point pre-2008 (when total consumer debt was lower).
  - provost 10y ago
    This is interesting.. source?
  - rootusrootus 10y ago
    That doesn't quite make sense. The interest on revolving debt is fixed at the level it was when you acquired the debt. Raising the rate across the board will definitely cause a lot of people to pay more, but only to the extent that they cannot stop themselves from buying more things on the card.
    - Spooky23 10y ago
      On secured loans sure. Credit cards are always priced at prime+margin, based on 30-60 day average balance. That can change every 30 days.
- tptacek 10y ago
  That is an important point, but it's not a point that falls out of the country's consumer debt to GDP ratio. The first question you should have with a headline like this is, "is $4.1 trillion a strange number in its proper context". The comment upthread is pretty valuable (as is 'cylinder's rebuttal).
wtvanhest 10y ago
I am going to split hairs... and honestly, this idea/concept isnt fully thought out so maybe someone can help me out here. Student loans would be an investment if like other investments, it could be removed from someone's 'portfolio'. IMO the fact that student loans are not dischargable means they are not an investment. Not sure what we should call student loans, but 'investment' seems like the wrong word.
- tptacek 10y ago
  "Not dischargable" means you can't rid yourself of them easily through bankruptcy. It's the nature of most loans that you can't remove them from your portfolio; you have to pay them off.
  - wtvanhest 10y ago
    I agree, but no one looks at the other forms of consumer debt as investments. If we are going to call student loans investments, we might as well call autoloans investments. The same logic could be applied. A car helps you get to a job and gives you a return.
    - rtx 10y ago
      It's an investment if it used to improve your economic condition, otherwise an expense.
      - Spivak 10y ago
        Maybe better phrasing would be you expect investments to appreciate in value. Although student loans could be viewed this way as investments they certainly not investments in the typical sense. You take out a car loan because you expect to extract more value from the car than its price plus interest. You take out a student loan for the same reason. If student loans were buying a some percentage of your monetary worth or income then I could see investment angle but that's basically owning a person which I couldn't support.
  - 10y ago
cylinder 10y ago
Looking at principal balances is all wrong. GDP means nothing in this instance either. What matters, and what lenders look at, is debt serviceability. Lenders don't want principal paid back, ideally you just keep paying interest for life. Let's say median household: Income: $4000/mo Rent: $1500/mo Other necessities: $2000/mo Let's say $500/mo "disposable." It's from this that the interest needs to be paid to service the debt on that $12,600 (actually, that's per person; there are 2.53 people in the median household, so $32k debt). What's the average interest rate? Maybe 10%? That's $266/month just for interest. Now, economy goes into recession, consumer loses income and will first stop paying unsecured debt (credit cards, student loans), then auto loan until repo, then finally mortgage. And keep in mind median American doesn't have a lot of liquid savings to cushion. If there's anything, it's in 401k or home equity - and now is not a good time to sell. But many are forced to, further increasing supply when buyers are scared off, so prices keep declining. Everything starts to be sold and assets get repriced. More seized cars at auction. More foreclosed houses. Banks restrict credit. Everything spirals down, quickly. Cashed up HNW investors willing to take the risk buy up firesale assets with cash and hold them. Maybe prices recover eventually, but now more assets are held by fewer people, and you've moved further into inequality. The US is very much a credit driven economy. That's why the credit crunch of 2007 had such a severe impact. This just happened a decade ago, and it seems people have already forgotten what it's like.
- Shivetya 10y ago
  A large amount of individual debt is wholly optional. What people ignore and therefor schools do not teach to be wary is that marketing is very well developed and convince otherwise rational people to make an irrational decision which has them take on more debt. from buying too much house or car to over buying an education that cannot be used where the person is or in a field that cannot withstand the costs. all of these are marketed products. all three have vary optional levels of how much they cost. then add in all the monthly bills and this is where many people miscalculate and it snow balls. from cell to internet to even television. you can quickly end up paying a significant amount of your income that has no tangible return.
  - 10y ago
heisenbit 10y ago
> Student loans represent a long term investment and may be reasonably paid off over decades. There are a number of indication that calls this into question. - Size of loans vs. prospective or actual salaries after study. - Age of debtors (some surprisingly old) - Number of loans becoming delinquent - Student loans taking off while other forms of consumer credit are stagnant or declining indicating that student loans are filling gaps elsewhere - Unprecedented volume of student loans
heisenbit 10y ago
> Student loans represent a long term investment and may be reasonably paid off over decades. There are a number of indication that calls this into question. - Size of loans vs. prospective or actual salaries after study. - Age of debtors (some surprisingly old) - Number of loans becoming delinquent - Student loans taking off while other forms of consumer credit are stagnant or declining indicating that student loans are filling gaps elsewhere
ZoeZoeBee 10y ago
The issue is the trend of many of the categories you listed. Your student loan assumptions are proving to be incorrect and your stats for cars appear to be from previous decades. >Consumers are stretching out auto loans farther than ever to a new record of 68 months. The longer the term, the lower the monthly payment. In the first quarter, almost a third of all auto loans came with repayment terms of 73-84 months, which was the most popular term among new vehicle buyers. http://www.cnbc.com/2016/06/02/us-borrowers-are-paying-more-and-for-longer-on-their-auto-loans.html http://www.cnbc.com/2016/06/02/us-borrowers-are-paying-more-...
graeme 10y ago
>It is difficult to evaluate credit card debt because credit cards have increasingly become the substitute for cash in the United States. How much of the debt is extremely short term and essentially represents what used to be cash transactions? Indeed, I've often wondered this. If someone has an average $3000 credit card balance that they pay off in full when due, are they listed as having $3000 in consumer debt on account of that?
- sokoloff 10y ago
  That's exactly how it shows on my credit report, so I'd assume "yes". (Source: I'm refinancing my house, so I happen to have a recent credit report pulled as part of that.)
- pps43 10y ago
  Yes. The credit bureau just shows the balance. Card issuer knows whether you are a transactor (pay the entire balance each month) or revolver (carry over some of the balance and therefore pay interest on it). This is a strong risk predictor.
- e12e 10y ago
  Should be possible to look at interest paid on credit card loans to better judge this?
adventured 10y ago
Your GDP figure is missing about $600 to $700 billion (equal to half the Australian or Russian economy): https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal) https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...
bdcravens 10y ago
> What is "other" consumer debt -- payday loans? IOU's? Other types of consumer loans, like furniture or other lines of credit. Additionally, many new phones are leased.
jordache 10y ago
GDP has little correlation with individual's ability to create monetary wealth.
TearsInTheRain 10y ago
I think that is a really really misleading way of looking at it. The debt burden is not carried equally across all demographics but is likely disproportionally allocated towards the young whereas wages are skewed towards the old. Also, just because you made the numbers sound small in an absolute sense doesn't mean they aren't large in a historical context.
hackuser 10y ago
> Thus, $4.1 trillion in consumer debt works out to $12,638 per person. > The Gross Domestic Product (GDP) in the United States was worth 18036.65 billion (about $18 trillion) US dollars in 2015. That is about $55,424 per person. Another important number: Wealth in the U.S. is ~$90 trillion, or ~$270,000 per person. That makes $13,000 in debt seem easier to support. Of course it depends highly on the distributions of wealth and debt. $80 billion of that wealth are in one person's hands, for example; he doesn't have debt problems.
njharman 10y ago
Student Loans are increasingly a bad investment. But whatever. $12k is a fuck ton of debt! A metric fuck ton, ~20% of avg yearly income. Not even counting mortgages.

TheOtherHobbes 10y ago

Other consumer debt includes mortgages. I'm sure there were people making similar arguments about the health of the US economy before 2008. http://inflation.us/wp-content/uploads/2015/04/niareport84.jpg http://inflation.us/wp-content/uploads/2015/04/niareport84.j...

mcguire 10y ago
Both of these statements are true.

mathattack 10y ago

Yes. If anything, the bigger issue is national debt. It can be broken out into investments versus borrowing for transfer payments, but either way the #s come out much higher. And it's easier for consumers to walk away from debt in a bankruptcy than it is for a country.

rootusrootus 10y ago
That is a difficult comparison. If all of my debt was denominated in a currency that I explicitly controlled the supply of, I wouldn't need to declare bankruptcy, I'd just increase the supply of money so I was solvent. At this time, the cost to the nation of servicing the debt is around what, 6 percent of income? I bet a lot of consumers (more than half) would find that to be very affordable.
- mathattack 10y ago
  Yes - interest rates on our debt is low. But increasing the money supply will eventually come with inflation, and with that higher interest rates. Eventually people will stop lending countries money. If they don't - that's even scarier. (A lack of viable investment alternatives)

dpweb 10y ago

The important thing really is the financial fragility of the American household. Millions of people know that they are one unexpected event away from insolvency. GDP doesn't mean anything to them. Consumer debt just puts them more at risk.

runeks 10y ago
Also, the more indebted the consumer, the higher the impact of rising interest rates on consumer spending. Every time the Fed raises rates by 0.25 percentage points, consumers need to pay an additional $10B in interest per year. Consequently, the rate of interest increasing by 1 percentage point today is not the same as it increasing by 1 percentage point pre-2008 (when total consumer debt was lower).
- provost 10y ago
  This is interesting.. source?
- rootusrootus 10y ago
  That doesn't quite make sense. The interest on revolving debt is fixed at the level it was when you acquired the debt. Raising the rate across the board will definitely cause a lot of people to pay more, but only to the extent that they cannot stop themselves from buying more things on the card.
  - Spooky23 10y ago
    On secured loans sure. Credit cards are always priced at prime+margin, based on 30-60 day average balance. That can change every 30 days.
tptacek 10y ago
That is an important point, but it's not a point that falls out of the country's consumer debt to GDP ratio. The first question you should have with a headline like this is, "is $4.1 trillion a strange number in its proper context". The comment upthread is pretty valuable (as is 'cylinder's rebuttal).

wtvanhest 10y ago

I am going to split hairs... and honestly, this idea/concept isnt fully thought out so maybe someone can help me out here. Student loans would be an investment if like other investments, it could be removed from someone's 'portfolio'. IMO the fact that student loans are not dischargable means they are not an investment. Not sure what we should call student loans, but 'investment' seems like the wrong word.

tptacek 10y ago
"Not dischargable" means you can't rid yourself of them easily through bankruptcy. It's the nature of most loans that you can't remove them from your portfolio; you have to pay them off.
- wtvanhest 10y ago
  I agree, but no one looks at the other forms of consumer debt as investments. If we are going to call student loans investments, we might as well call autoloans investments. The same logic could be applied. A car helps you get to a job and gives you a return.
  - rtx 10y ago
    It's an investment if it used to improve your economic condition, otherwise an expense.
    - Spivak 10y ago
      Maybe better phrasing would be you expect investments to appreciate in value. Although student loans could be viewed this way as investments they certainly not investments in the typical sense. You take out a car loan because you expect to extract more value from the car than its price plus interest. You take out a student loan for the same reason. If student loans were buying a some percentage of your monetary worth or income then I could see investment angle but that's basically owning a person which I couldn't support.
- 10y ago

cylinder 10y ago

Looking at principal balances is all wrong. GDP means nothing in this instance either. What matters, and what lenders look at, is debt serviceability. Lenders don't want principal paid back, ideally you just keep paying interest for life. Let's say median household: Income: $4000/mo Rent: $1500/mo Other necessities: $2000/mo Let's say $500/mo "disposable." It's from this that the interest needs to be paid to service the debt on that $12,600 (actually, that's per person; there are 2.53 people in the median household, so $32k debt). What's the average interest rate? Maybe 10%? That's $266/month just for interest. Now, economy goes into recession, consumer loses income and will first stop paying unsecured debt (credit cards, student loans), then auto loan until repo, then finally mortgage. And keep in mind median American doesn't have a lot of liquid savings to cushion. If there's anything, it's in 401k or home equity - and now is not a good time to sell. But many are forced to, further increasing supply when buyers are scared off, so prices keep declining. Everything starts to be sold and assets get repriced. More seized cars at auction. More foreclosed houses. Banks restrict credit. Everything spirals down, quickly. Cashed up HNW investors willing to take the risk buy up firesale assets with cash and hold them. Maybe prices recover eventually, but now more assets are held by fewer people, and you've moved further into inequality. The US is very much a credit driven economy. That's why the credit crunch of 2007 had such a severe impact. This just happened a decade ago, and it seems people have already forgotten what it's like.

Shivetya 10y ago
A large amount of individual debt is wholly optional. What people ignore and therefor schools do not teach to be wary is that marketing is very well developed and convince otherwise rational people to make an irrational decision which has them take on more debt. from buying too much house or car to over buying an education that cannot be used where the person is or in a field that cannot withstand the costs. all of these are marketed products. all three have vary optional levels of how much they cost. then add in all the monthly bills and this is where many people miscalculate and it snow balls. from cell to internet to even television. you can quickly end up paying a significant amount of your income that has no tangible return.
- 10y ago

heisenbit 10y ago

> Student loans represent a long term investment and may be reasonably paid off over decades. There are a number of indication that calls this into question. - Size of loans vs. prospective or actual salaries after study. - Age of debtors (some surprisingly old) - Number of loans becoming delinquent - Student loans taking off while other forms of consumer credit are stagnant or declining indicating that student loans are filling gaps elsewhere - Unprecedented volume of student loans

heisenbit 10y ago

ZoeZoeBee 10y ago

The issue is the trend of many of the categories you listed. Your student loan assumptions are proving to be incorrect and your stats for cars appear to be from previous decades. >Consumers are stretching out auto loans farther than ever to a new record of 68 months. The longer the term, the lower the monthly payment. In the first quarter, almost a third of all auto loans came with repayment terms of 73-84 months, which was the most popular term among new vehicle buyers. http://www.cnbc.com/2016/06/02/us-borrowers-are-paying-more-and-for-longer-on-their-auto-loans.html http://www.cnbc.com/2016/06/02/us-borrowers-are-paying-more-...

graeme 10y ago

>It is difficult to evaluate credit card debt because credit cards have increasingly become the substitute for cash in the United States. How much of the debt is extremely short term and essentially represents what used to be cash transactions? Indeed, I've often wondered this. If someone has an average $3000 credit card balance that they pay off in full when due, are they listed as having $3000 in consumer debt on account of that?

sokoloff 10y ago
That's exactly how it shows on my credit report, so I'd assume "yes". (Source: I'm refinancing my house, so I happen to have a recent credit report pulled as part of that.)
pps43 10y ago
Yes. The credit bureau just shows the balance. Card issuer knows whether you are a transactor (pay the entire balance each month) or revolver (carry over some of the balance and therefore pay interest on it). This is a strong risk predictor.
e12e 10y ago
Should be possible to look at interest paid on credit card loans to better judge this?

adventured 10y ago

Your GDP figure is missing about $600 to $700 billion (equal to half the Australian or Russian economy): https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal) https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...

bdcravens 10y ago

> What is "other" consumer debt -- payday loans? IOU's? Other types of consumer loans, like furniture or other lines of credit. Additionally, many new phones are leased.

jordache 10y ago

GDP has little correlation with individual's ability to create monetary wealth.

TearsInTheRain 10y ago

I think that is a really really misleading way of looking at it. The debt burden is not carried equally across all demographics but is likely disproportionally allocated towards the young whereas wages are skewed towards the old. Also, just because you made the numbers sound small in an absolute sense doesn't mean they aren't large in a historical context.

hackuser 10y ago

> Thus, $4.1 trillion in consumer debt works out to $12,638 per person. > The Gross Domestic Product (GDP) in the United States was worth 18036.65 billion (about $18 trillion) US dollars in 2015. That is about $55,424 per person. Another important number: Wealth in the U.S. is ~$90 trillion, or ~$270,000 per person. That makes $13,000 in debt seem easier to support. Of course it depends highly on the distributions of wealth and debt. $80 billion of that wealth are in one person's hands, for example; he doesn't have debt problems.

njharman 10y ago

Student Loans are increasingly a bad investment. But whatever. $12k is a fuck ton of debt! A metric fuck ton, ~20% of avg yearly income. Not even counting mortgages.