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US Household Debt Surpasses 2008 High

250 points by kcorbitt 9y ago

thetwentyone 9y ago
When looking at this in relation to the fact that the united states is bigger than it was 10 years ago in a number of regards. See these for less dour views: https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/TDSP https://fred.stlouisfed.org/series/TDSP
blazespin 9y ago
Gee, account for inflation much
yellowbeard 9y ago
Looking at the total dollar amount of debt makes a good headline, but is simplistic. With lower interest rates, households are spending far less to service their debt than they were in 2008. The article only mentions this briefly near the end.
omgwtfbyobbq 9y ago
$13.6 trillion is a ton of debt (literally?). At the same time, I think debt versus net worth is a more descriptive metric. Back in 2008, household net worth (HNW) was about $56 trillion, so household debt was about a quarter of HNW. With HNW at about $93 trillion, reaching $14+ trillion in household debt doesn't sting as much. https://www.federalreserve.gov/releases/z1/current/z1.pdf https://www.federalreserve.gov/releases/z1/current/z1.pdf At the same time, interest rates are still near historic lows, and may assets have appreciated because of this. I wouldn't be surprised to see real estate drop a bit as the Fed raises rates, which would take a chunk out of HNW.
- redblacktree 9y ago
  What about the distribution of net worth vs debt? If the two are balanced, I agree with your point.
- hiddencost 9y ago
  The change in HNW is not distributed evenly; the increase in individual debt is anti-correlated with increasing individual HNW.
- AnimalMuppet 9y ago
  > $13.6 trillion is a ton of debt (literally?) IIRC, in $100 bills, $100 million is a ton. $13.6 trillion is 136,000 tons of $100 bills.
- david927 9y ago
  debt versus net worth is a more descriptive metric. But over time debt will inflate the economy and make net worth look like it has been raised, when in fact, it's the effect of the debt itself.
- rsync 9y ago
  "$13.6 trillion is a ton of debt (literally?)." It depends ... if trillion dollar coins only weigh an ounce, that could be less than a single pound of debt: https://en.wikipedia.org/wiki/Trillion_dollar_coin https://en.wikipedia.org/wiki/Trillion_dollar_coin
themagician 9y ago
I think it's going to hit housing hard (again), but probably not anytime soon. A lot of my friends have student loan debt that will never be paid off. They either can't get a job that pays enough to pay it off in a timely fashion or they choose not to grind for 5-8 years to pay it off. Instead, the plan is to do as little as possible for the next 25 years until it's forgiven, and try to keep as much cash off the books as possible so they can live a life worth living. I can't say I blame them. We can probably ride the debt train for the next decade or so, but at some point there will be too few buyers with capital because they spent the last two decades intentionally not building assets.
- staticelf 9y ago
  This is basically not possible in my country since there is basically no cash. Most people I know don't carry cash at all if it's not absolutely necessary for some reason.
- thatwebdude 9y ago
  This is only possible in certain situations for certain borrowers who borrowed a certain kind of loan. Too many people think there's forgiveness light at the end of the tunnel. I feel really bad when they realize there isn't. Except death, maybe. I bet we'll see some of that, too. https://studentloanhero.com/featured/federal-student-loan-forgiveness-actually-begin/ https://studentloanhero.com/featured/federal-student-loan-fo...
  - themagician 9y ago
    It's possible in most situations. Most people have federal student loans—which are the ones that aren't easily discharged—and as long as you are on an income-based repayment program, the loans are forgiven after 25 years. You are basically given two choices as an average person after you hit over $150k debt: 1) Spend 5-10 years throwing your life away to a job to try and grind away your debt; or 2) Work a low-income job for 25 years and spend your time more meaningfully. Low income doesn't mean no income, it just means you don't get to participate in consumer capitalism the way those without debt do. You can fault people for their lack of foresight, but honestly if I was in that situation I'd probably opt for option #2 as well.
Retric 9y ago
In nominal terms ignoring the ~15% inflation. PS: Inflation only shows up once as "The household debt figures are not adjusted for inflation" but that still renders the headline meaningless.
- tantalor 9y ago
  Also, "per capita"?
  - encoderer 9y ago
    Also no mention of "share of GDP". Basically, the article is rubbish.
    - NTDF9 9y ago
      Share of GDP seems important. Why is this rubbish?
      - sologoub 9y ago
        Not the OP, but I think the comment meant that without inflation adjustment and proper ratios, you can't draw correct conclusions. The nominal number is big, but 2008 number is today's dollars would have been $14.17 trillion, or 11.3% higher than the current debt reported.
    - ericd 9y ago
      http://www.tradingeconomics.com/united-states/households-debt-to-gdp http://www.tradingeconomics.com/united-states/households-deb... Switch the graph to 10 year. We're significantly lower on the household side, not so on the government side. http://www.tradingeconomics.com/united-states/government-debt-to-gdp http://www.tradingeconomics.com/united-states/government-deb...
mdorazio 9y ago
For those who just read the title, the cause of this new high is ballooning student debt, not mortgages. Housing debt is still mostly declining.
- loeg 9y ago
  Auto debt has grown a little, too.
- libria 9y ago
  Why is student loan debt not dischargable in bankruptcy? If it were, banks would be far less likely to issue them, students would find cheaper education alternatives, and universities would be forced to provide greater assistance.
  - Goronmon 9y ago
    Why is student loan debt not dischargable in bankruptcy? Because there isn't a way to take back the knowledge/skills/information learned while in college. If you default on a home loan, then can take your house. If you default on a car loan, they can take your car. What can they do when you default on your student loans?
    - flukus 9y ago
      > Because there isn't a way to take back the knowledge/skills/information learned while in college. Time does that anyway, you'd be surprised how much you forget when you don't use it everyday. Plus the knowledge get's stale. A university degree depreciates just like everything else.
    - int_19h 9y ago
      You can still declare bankruptcy when you don't have the collateral for your car/house loan anymore, though. For example, if your car was totaled, or your house burned down.
      - theoracle101 9y ago
tacct142 9y ago
Excellent. Which group of poor decision makers will I get to bail out soon (oh, students, superb!) while reading my daily "The Death of the Middle Class" article?
- cyfihyfi 9y ago
  Why would a bunch of rich kids get the bailout we should instead give the money to all those poor banks that put themselves at risk.
  - pjmorris 9y ago
    /s? A bank's core function is to evaluate credit risk. If a bank can't do that, the people running it should be doing something else.
- rrggrr 9y ago
  You will be bailing our your State's underfunded pension first, most likely. If not your State then some other State when their debt is federalized.
- zedzedb5 9y ago
  It gets better still . . . http://www.fanniemae.com/portal/media/financial-news/2017/student-loan-debt-6546.html http://www.fanniemae.com/portal/media/financial-news/2017/st...
tsunamifury 9y ago
This appears to be an even worse situation than 2008 because housing debt has gone down not because homes are cheaper, but that people can't buy homes. And other forms of debt with far smaller effect on net-wealth and GDP as well far harsher discharge terms are eating up the difference. This makes for the same (or more) debt load in an even riskier, more individually onerous, combination.
- slg 9y ago
  I don't want to say that student loans aren't a big problem or that there isn't a bubble, but I think the panic of a potential repeat of 2008 is missing a big portion of the mortgage crisis. In 2008 there was a feedback loop that caused things to spiral out of control. Every house that was foreclosed on hit the market at a lower and lower price. This made it harder for people to refinance their existing mortgages. This was a huge problem because adjustable rate mortgages were all the rage leading up to 2008. The result was more foreclosures and then the loop repeated itself. That isn't possible with student loans. If the student loan market pops, it will be awful for banks, it will be awful for the stock market, it will be awful for the country as a whole, but it isn't inherently going to make other people's student loans more difficult to pay off.
  - tsunamifury 9y ago
    Uh, extended graduated loan repayment with Libor variable rate, sir.
  - downrightmike 9y ago
    We are kind of in the same place as the 2008 crisis, except the sub prime mortgages have been extrapolated out a level. The comercial product being sold today is the rent collected from the properties and the mortgage is the collateral. So if the renter can't pay, kick them out, The market shouldn't tank all at once, it will continue to go up 20% a year until nearly no one can afford to live in a house period. Then crash. http://www.motherjones.com/politics/2014/01/blackstone-rental-homes-bundled-derivatives http://www.motherjones.com/politics/2014/01/blackstone-renta...
deleted 9y ago
[deleted]
manacit 9y ago
I don't know if it's a "bubble" (I am not qualified to say that), but I can't imagine that the current trend with student loans will continue. Looking at the numbers for someone entering college in 2017, it feels nearly predatory what a good portion of private and out of state colleges are charging. Even with financial aid, $30-40k a year for 4-5 years is insane. I was fortunate enough to have parents who made saving for my college a priority, but watching them go through the same dance with my younger brother makes me wonder how most people get it done. There's a huge value in going to higher education, but the ever increasing cost and amount of debt people are taking on is setting everyone but the top 10% of graduates up for a life of being in debt, which is kind of horrifying. Especially since they are debts that are impossible to shed through bankruptcy.
- jlarocco 9y ago
  > There's a huge value in going to higher education, but the ever increasing cost and amount of debt people are taking on is setting everyone but the top 10% of graduates up for a life of being in debt, which is kind of horrifying. Especially since they are debts that are impossible to shed through bankruptcy. I'm not sure you can make a blanket statement like that. The reason all these student loans have become a problem is that objectively a lot of degrees don't have a huge value. People are borrowing insane amounts to become the billionth undecided communications major and it doesn't make any sense at all. It's almost like we've cut k-12 education funding (and quality) so low that people need to go to college just to get the education they should have received in high school.
- ProfessorLayton 9y ago
  I definitely agree that rapidly rising education costs are a huge issue and need to be addressed. However, most (67%) undergraduate student loan amounts are for less than 20K[1] At 6.8% interest and 10 year repayment that comes to about $2,761 per year, with interest that can be paid with pre-tax money. Yes, thats a hefty amount to many, but earnings with a college degree are still much more than enough to offset that burden. Furthermore, 42% are for less than 10k. The student loan debt crisis doesn't seem like all doom and gloom just yet. [1] https://trends.collegeboard.org/student-aid/figures-tables/distribution-borrowers-average-balance-2015 https://trends.collegeboard.org/student-aid/figures-tables/d... Yes its from 2015, but I can't imagine the distribution has changed so much that it is irrelevant. According to Wikipedia, 39.9% owed less than 10k in 2012 [2]. https://en.wikipedia.org/wiki/Student_loan_default_in_the_United_States#/media/File:U.S._Student_Loan_Debt_Distribution_Q4_2012.png https://en.wikipedia.org/wiki/Student_loan_default_in_the_Un...
jjawssd 9y ago
Germany provides excellent educational opportunities in many fields for American citizens at close to zero out of pocket expense for the student. Google "Germany Erasmus".
- pilsetnieks 9y ago
  Erasmus is a EU programme for student exchange between cooperating universities for up to a year, it's not relevant in this case. However, they should look at German universities in general because they are practically free for anyone.
  - vadym909 9y ago
    Surprised why more Americans don't explore colleges in low tuition countries.
  - utternerd 9y ago
    "Free" meaning coercion via the state to fund other people's pursuits. Perhaps we should look at why costs are rising? People need to seriously evaluate if it's really needed for them. I reject your notion that everyone, or even most people need a college degree. (I didn't, and I live quite comfortably thanks to tech with a 6 figure salary) Part of the problem is exactly that we're subsidizing many people, forcing more scarcity and leading to higher prices. Using force to make someone else pay for my stuff isn't something I want to condone.
    - jjawssd 9y ago
      Germans gladly accept the state taking half of their paycheck for pursuits such as this.
- sjg007 9y ago
  True... If you are a qualified American applicant you should definitely consider getting your degree in Europe/England. It's a different system, perspective but worthwhile in the end. Certainly cheaper.
NTDF9 9y ago
Leave it to America to make children a pseudo-slave right when they enter adulthood.
- dragonsky67 9y ago
  It will be interesting to see if there is an uptake by employers of (cheaper?) employees who have gained knowledge/education via free/cheap online courses. In my experience of a couple of CompSci online courses they appear to be as effective (if not more) in imparting knowledge and skills. When employers can identify this and start to treat completion of these these courses with the same level of importance as from a "real" university then maybe things will start to change. The only thing I can see that will challenge this is the cultural indoctrination that seems to be part of the more esteemed universities. How much of the decision to employ somebody from a Harvard or MIT is knowing that the employee has been indoctrinated to think in a particular way?
- Analemma_ 9y ago
  It's how you can tell we have so much freedom and economic liberty.
  - geogra4 9y ago
    Freedom in capitalist society always remains about the same as it was in ancient Greek republics: Freedom for slave owners
ryandamm 9y ago
An alternative view, and one I happen to subscribe to: a balance sheet analysis shows that US debt must go up over time to support exogenous capital flows. Whether US debt grows in the housing sector, student loans, revolving debt, etc is a function of internal, domestic dynamics (including laws, local economic structure, etc). But the total capital flow into the US exceeds the outflow; that money ends up on a balance sheet somewhere. It's sort of the flipside to our conventional notion of trade balance, that the capital account must be equal and opposite. The difference is that capital flows are now 4-5x what's necessary to account for trade, so it's really capital movements wagging the trade dog. The net effect of inbound capital flow into the US is people must consume more than they produce, to absorb the additional capital. That is debt. And that debt ends up somewhere, either on the government's balance sheet, in the corporate sector, or households. Major hat tip to Michael Pettis for his work describing this. His writings are dense but very digestible (http://carnegieendowment.org/chinafinancialmarkets/ http://carnegieendowment.org/chinafinancialmarkets/). [edited a typo]
- ced 9y ago
  I'd like to understand this better. There's two villages. A businessman from village B comes to village A and buys a store from Bob for 100$. Bob keeps the money for a rainy day. Where is debt increasing?
  - kcanini 9y ago
    In this case, the net capital flow is zero. $100 is transferred from B to A, and a business worth $100 is transferred from A to B.
    - ryandamm 9y ago
      There's merely a transfer of liquidity if the two villages share a currency. But that's a delicate equilibrium; to wit, the Euro area, where capital flows can't be balanced by the exchange rate mechanism, so they're balanced by unemployment. Pettis does a better job of explaining (my previous, insanely-long-winded post is exhibit A), but the net result of unbalanced capital flows is typically an increase in debt, which is often manifested in the unemployment rate for an open economy. That's basically the story in peripheral Europe right now; Greece suffered more from a fixed exchange rate with Germany than from corruption and tax avoidance. At least, if you subscribe to the balance sheet analysis.
rrggrr 9y ago
Keep in-mind this household debt is above and beyond each household's share of their municipal, county, state and federal debt. If you live in LA County, CA: - about $4,200 in State Debt. - roughly another $4,000 or in LA County debt. - $161,000 in federal debt. - $16,000 in credit card debt on average. - Car loan, home payment, etc. And on average your savings are minimal. Most importantly, if this isn't you, its still someone you'll be bailing out through higher taxes and/or some other shared burden. Ironically, the more indebted we become the more dependent we are on our government to address the problems widespread indebtedness creates. This may explain why efforts to enact economic growth policies that restore 5-6% GDP growth are met with all talk and no action in most state capitals and Washington, D.C. Its almost as if they wish to intentionally drive the the country over the fiscal cliff.
- seoguru 9y ago
  $161K in federal "debt" AKA net financial assets of the private sector. The "debt clock" should be renamed the "private sector savings clock". The monopoly issuer of the dollar is the federal government. https://www.youtube.com/watch?v=c4sD-JDVwwQ https://www.youtube.com/watch?v=c4sD-JDVwwQ and for the conspiracy theorists who deny the US government as the monoploy issuer: http://elliswinningham.net/index.php/2016/12/30/ridiculous-notion-federal-reserve-private-bank-concerning-persons-peddle-nonsense-final-words-subject/ http://elliswinningham.net/index.php/2016/12/30/ridiculous-n...
- tupshin 9y ago
  I was with you until the end. What policy proposals do you think would realistically restore 5-6% growth?
  - paulddraper 9y ago
    Not the OP, I'm guessing lowering corporate tax rate, and similar measures to bring foreign production home.
- godtoldmetodoit 9y ago
  What economic growth policies could we enact that would result in 5-6% GDP growth? From my admittedly limited understanding, that seems to be quite the stretch.
btilly 9y ago
This is very worrisome. This is ballooning student debt. And unlike other forms of debt, you don't get to discharge student debt in bankruptcy. So..plan a career, get higher education, have your plans disrupted, and your life is ruined with no escape. Enjoy the 21st century. What is really sad is that there is no evidence that colleges are providing a better product. In fact the switch to grad students and adjunct faculty means that the actual delivery of their education should be cheaper. (Of course universities are getting less efficient, so it isn't. But the cost of classroom instruction time is not what is going up...)
WatchDog 9y ago
According to the public OECD data [1] the US household debt as a % of disposable income is on a downward trend. [1]: https://data.oecd.org/chart/4Qct https://data.oecd.org/chart/4Qct
tracker1 9y ago
How is having a higher percentage (double) of student loan debt that should be payable in a few years today any better than higher mortgages... it seems to me, this is a bad trend in general... :-/
- manacit 9y ago
  Considering the collateral against that student loan debt is nothing (hence them not being dischargeable in bankruptcy), I would think it's much worse than an increase in mortgage values. Of course, there have been other articles on the HN front page as recently as today talking about rising home costs as well. America (and the world? I don't feel qualified to say that) has a very odd relationship with debt, and it's driving all sorts of weird societal behaviors, like taking $100k+ in debt to get a college degree. I don't forsee it ending well.
thinkling 9y ago
$600B additional student debt over 10 years sounded high to me, so I did the ballpark check. $600B over 10 years is $60B/year. There are about 20 million college students [1]. That means $3000 per student per year on average. If loans are paid back over 10-20 years, this really says that students are borrowing $3000 more per year than they were 10-20 years ago. The article suggested that borrowing was about $600B total, 10 years ago, so essentially it has doubled. FWIW, CPI inflation over the last 20 years is ~50%, the other 50% is either real increase in borrowing or due to the fact that college tuition rates have been increasing faster than inflation. [1] https://nces.ed.gov/fastfacts/display.asp?id=372 https://nces.ed.gov/fastfacts/display.asp?id=372
- Spellman 9y ago
  Tuition and Room and Board are increasing way faster than inflation. https://inflationdata.com/Inflation/Inflation_Articles/Education_Inflation.asp https://inflationdata.com/Inflation/Inflation_Articles/Educa... CNBC has a fun infographic interactive from 2014 to look at where those increases are going. http://www.cnbc.com/2015/06/16/why-college-costs-are-so-high-and-rising.html http://www.cnbc.com/2015/06/16/why-college-costs-are-so-high...
- swyx 9y ago
  fantastic math and well reasoned. thanks for sharing.
theprop 9y ago
Yes, the student debt growth is unsustainable. It's up 10x in a bit over 10 years. Unbelievable!! There are only three things whose relative cost has gone up in the past 40 years: education, health care, and housing. It's also amazing to me is that total household debt is 12.5 trillion, while the federal debt is just about $20 trillion. In $12.5 trillion so many people have gotten an education and own a home. What exactly did anyone get with that $20 trillion the federal government has spent?
- spydum 9y ago
  Opportunity.
theprop 9y ago
This page has fantastic data: http://www.usdebtclock.org/# http://www.usdebtclock.org/# Another stunning data point is that in the wealthiest, most productive society that's ever existed, over 40 million people are on food stamps!
dhf17 9y ago
I work at a major state university that is claimed to be one of the most efficient in the US. On the administrative side it is a disorganized cluster bomb, full of frivolous spending, wasteful processes, and is years behind in technology and software. The things I've seen people manually doing on a computer all day... Throw on top the spending on social justice initiatives and you have your self a fat burden to pass on to students.
- thatwebdude 9y ago
  When was any university ever efficient? When they wanted me to pay a parking ticket. They had that shit down to an exact science.
mleonhard 9y ago
The last paragraph makes the whole article seem like an advertisement: "That made last month feel like an opportune time for Caitlin Farrell, 34, and her husband to buy their first home, a 1,500-square-foot, two-bedroom house in Sacramento. Ms. Farrell, who works as an education policy researcher, got her home loan from SoFi, a start-up online lender that moved into the mortgage market last year."
cheriot 9y ago
FYI, it's not adjusted for inflation so in real terms we're likely under the peak. The article talks a lot about debt with no mention of the income supporting it, which is a glaring oversight for any kind of financial analysis. All I can find quickly are median real numbers through 2015. It's not pretty. https://en.wikipedia.org/wiki/Household_income_in_the_United_States#/media/File:US_Real_Household_Median_Income_thru_2014.png https://en.wikipedia.org/wiki/Household_income_in_the_United...
easilyBored 9y ago
US Household Debt Surpasses 2008 High Yeah but this time is different :). Memo to self: looks like US stock market goes from feast to famine in 10 year cycles. Sell now and buy at 40% discount 1-2 years later. Rinse. Repeat
nomercy400 9y ago
The 100% chart is quite deceptive. Student loans take a larger share of the debt. Is that because increased tuition fees (probably), is that because more young people have become students (ie. higher education available to more people), is it because young graduates won't buy a house and still live with their parents (and thus stay in the Student Loans category instead of moving to the Mortage category) and opt for a car instead (thus moving part to the Auto Loans category)? Is it because houses (and thus underlying loans) are cheaper? Basically all this 100% chart says is that people are taking out less of a loan for a house.
- danesparza 9y ago
  I would disagree with your last statement. The chart is ambiguous (which is just poor reporting on the part of NYTimes). It's unclear if auto loans have grown, student loans have grown, the average home loan has shrunk (or just gotten paid down since 2008), or if there is another effect in play. The 'percentage share of consumer debt' each item is isn't a useful fact on it's own.
batushka 9y ago
From the state point huge student debt is wonderful. Fresh workforce starts with negative balance: they are vulnerable and controllable (trying to pay out it or begging for mercy to aid with debt).
dx034 9y ago
Why not go to Germany, get a degree there (many universities offer english speaking courses) for free? You end up with much less debt (if any) and have some additional experience. I studied in Germany in English and there were a lot of people from all over the world in my course (only 20% from Germany) but there wasn't a single person from the US. Maybe the Uni wasn't as good as Harvard but certainly better than many colleges you'd find in the US. What keeps US students from coming to Germany and study there? It shouldn't be a visa problem nor language.
- cr1895 9y ago
  >What keeps US students from coming to Germany and study there? Increasingly more Americans are studying in Germany (and elsewhere). http://www.dw.com/en/leaving-the-us-for-a-german-degree/a-18599858 http://www.dw.com/en/leaving-the-us-for-a-german-degree/a-18... But, I think you underestimate how difficult it is to move to another country. Language, visas (and other bureaocracy) are indeed issues, as are uprooting one's life and moving to a foreign place; no friends, family, familiarity. Of course studying in Germany or the NL or another country where the education is taking place in English is less of a barrier than moving to a place where that isn't the case, but it is a barrier nonetheless. It can be nervewracking and overwhelming. It's a major step; much more so than simply moving to another US state for college, for example. I say this as someone who left the US years ago to study. I adapted quite well, but I recognize what a big shift it can be.
  - saiya-jin 9y ago
    What you describe are not drawbacks, but for young people actually additional benefits - challenges associated with move give valuable experience for life and build character - exactly what young need. It is a major step? Of course, but there are plenty of major steps in life, it's not supposed to be a static and predictable set of comfortable experiences. That would be actually a definition of boring life...
MaysonL 9y ago
The amount of debt may surpass the 2008 high, but the debt service required is still near a four decade low.[0] [0]http://cepr.net/blogs/beat-the-press/tell-the-alarmists-to-calm-down-the-debt-crisis-is-not-coming-back http://cepr.net/blogs/beat-the-press/tell-the-alarmists-to-c...
stillhere 9y ago
"People don't own their things. The banks do." -Varg Vikernes
dhf17 9y ago
How to graduate with little to no debt and no scholarship: - Go to community college and live at home for the first two years - Work part-time even if it takes you longer to finish - Don't get a fracking auto loan. A well maintained 90s Japanese car will go a long way. If you can program, basic car mechanics is easy. - Don't pay out of state tuition - If your going for an MS, get a basic full time job at a university first (A lot of schools have tuition waivers for employees) - Don't YOLO on someone else's dime, if you're frugal and modest you can do it later on your own.

250 points by kcorbitt 9y ago

When looking at this in relation to the fact that the united states is bigger than it was 10 years ago in a number of regards. See these for less dour views: https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/TDSP https://fred.stlouisfed.org/series/TDSP

blazespin 9y ago

Gee, account for inflation much

yellowbeard 9y ago

Looking at the total dollar amount of debt makes a good headline, but is simplistic. With lower interest rates, households are spending far less to service their debt than they were in 2008. The article only mentions this briefly near the end.

omgwtfbyobbq 9y ago

$13.6 trillion is a ton of debt (literally?). At the same time, I think debt versus net worth is a more descriptive metric. Back in 2008, household net worth (HNW) was about $56 trillion, so household debt was about a quarter of HNW. With HNW at about $93 trillion, reaching $14+ trillion in household debt doesn't sting as much. https://www.federalreserve.gov/releases/z1/current/z1.pdf https://www.federalreserve.gov/releases/z1/current/z1.pdf At the same time, interest rates are still near historic lows, and may assets have appreciated because of this. I wouldn't be surprised to see real estate drop a bit as the Fed raises rates, which would take a chunk out of HNW.

redblacktree 9y ago
What about the distribution of net worth vs debt? If the two are balanced, I agree with your point.
hiddencost 9y ago
The change in HNW is not distributed evenly; the increase in individual debt is anti-correlated with increasing individual HNW.
AnimalMuppet 9y ago
> $13.6 trillion is a ton of debt (literally?) IIRC, in $100 bills, $100 million is a ton. $13.6 trillion is 136,000 tons of $100 bills.
david927 9y ago
debt versus net worth is a more descriptive metric. But over time debt will inflate the economy and make net worth look like it has been raised, when in fact, it's the effect of the debt itself.
rsync 9y ago
"$13.6 trillion is a ton of debt (literally?)." It depends ... if trillion dollar coins only weigh an ounce, that could be less than a single pound of debt: https://en.wikipedia.org/wiki/Trillion_dollar_coin https://en.wikipedia.org/wiki/Trillion_dollar_coin

themagician 9y ago

I think it's going to hit housing hard (again), but probably not anytime soon. A lot of my friends have student loan debt that will never be paid off. They either can't get a job that pays enough to pay it off in a timely fashion or they choose not to grind for 5-8 years to pay it off. Instead, the plan is to do as little as possible for the next 25 years until it's forgiven, and try to keep as much cash off the books as possible so they can live a life worth living. I can't say I blame them. We can probably ride the debt train for the next decade or so, but at some point there will be too few buyers with capital because they spent the last two decades intentionally not building assets.

staticelf 9y ago
This is basically not possible in my country since there is basically no cash. Most people I know don't carry cash at all if it's not absolutely necessary for some reason.
thatwebdude 9y ago
This is only possible in certain situations for certain borrowers who borrowed a certain kind of loan. Too many people think there's forgiveness light at the end of the tunnel. I feel really bad when they realize there isn't. Except death, maybe. I bet we'll see some of that, too. https://studentloanhero.com/featured/federal-student-loan-forgiveness-actually-begin/ https://studentloanhero.com/featured/federal-student-loan-fo...
- themagician 9y ago
  It's possible in most situations. Most people have federal student loans—which are the ones that aren't easily discharged—and as long as you are on an income-based repayment program, the loans are forgiven after 25 years. You are basically given two choices as an average person after you hit over $150k debt: 1) Spend 5-10 years throwing your life away to a job to try and grind away your debt; or 2) Work a low-income job for 25 years and spend your time more meaningfully. Low income doesn't mean no income, it just means you don't get to participate in consumer capitalism the way those without debt do. You can fault people for their lack of foresight, but honestly if I was in that situation I'd probably opt for option #2 as well.

Retric 9y ago

In nominal terms ignoring the ~15% inflation. PS: Inflation only shows up once as "The household debt figures are not adjusted for inflation" but that still renders the headline meaningless.

tantalor 9y ago
Also, "per capita"?
- encoderer 9y ago
  Also no mention of "share of GDP". Basically, the article is rubbish.
  - NTDF9 9y ago
    Share of GDP seems important. Why is this rubbish?
    - sologoub 9y ago
      Not the OP, but I think the comment meant that without inflation adjustment and proper ratios, you can't draw correct conclusions. The nominal number is big, but 2008 number is today's dollars would have been $14.17 trillion, or 11.3% higher than the current debt reported.
  - ericd 9y ago
    http://www.tradingeconomics.com/united-states/households-debt-to-gdp http://www.tradingeconomics.com/united-states/households-deb... Switch the graph to 10 year. We're significantly lower on the household side, not so on the government side. http://www.tradingeconomics.com/united-states/government-debt-to-gdp http://www.tradingeconomics.com/united-states/government-deb...

mdorazio 9y ago

For those who just read the title, the cause of this new high is ballooning student debt, not mortgages. Housing debt is still mostly declining.

loeg 9y ago
Auto debt has grown a little, too.
libria 9y ago
Why is student loan debt not dischargable in bankruptcy? If it were, banks would be far less likely to issue them, students would find cheaper education alternatives, and universities would be forced to provide greater assistance.
- Goronmon 9y ago
  Why is student loan debt not dischargable in bankruptcy? Because there isn't a way to take back the knowledge/skills/information learned while in college. If you default on a home loan, then can take your house. If you default on a car loan, they can take your car. What can they do when you default on your student loans?
  - flukus 9y ago
    > Because there isn't a way to take back the knowledge/skills/information learned while in college. Time does that anyway, you'd be surprised how much you forget when you don't use it everyday. Plus the knowledge get's stale. A university degree depreciates just like everything else.
  - int_19h 9y ago
    You can still declare bankruptcy when you don't have the collateral for your car/house loan anymore, though. For example, if your car was totaled, or your house burned down.
    - theoracle101 9y ago

tacct142 9y ago

Excellent. Which group of poor decision makers will I get to bail out soon (oh, students, superb!) while reading my daily "The Death of the Middle Class" article?

cyfihyfi 9y ago
Why would a bunch of rich kids get the bailout we should instead give the money to all those poor banks that put themselves at risk.
- pjmorris 9y ago
  /s? A bank's core function is to evaluate credit risk. If a bank can't do that, the people running it should be doing something else.
rrggrr 9y ago
You will be bailing our your State's underfunded pension first, most likely. If not your State then some other State when their debt is federalized.
zedzedb5 9y ago
It gets better still . . . http://www.fanniemae.com/portal/media/financial-news/2017/student-loan-debt-6546.html http://www.fanniemae.com/portal/media/financial-news/2017/st...

tsunamifury 9y ago

This appears to be an even worse situation than 2008 because housing debt has gone down not because homes are cheaper, but that people can't buy homes. And other forms of debt with far smaller effect on net-wealth and GDP as well far harsher discharge terms are eating up the difference. This makes for the same (or more) debt load in an even riskier, more individually onerous, combination.

slg 9y ago
I don't want to say that student loans aren't a big problem or that there isn't a bubble, but I think the panic of a potential repeat of 2008 is missing a big portion of the mortgage crisis. In 2008 there was a feedback loop that caused things to spiral out of control. Every house that was foreclosed on hit the market at a lower and lower price. This made it harder for people to refinance their existing mortgages. This was a huge problem because adjustable rate mortgages were all the rage leading up to 2008. The result was more foreclosures and then the loop repeated itself. That isn't possible with student loans. If the student loan market pops, it will be awful for banks, it will be awful for the stock market, it will be awful for the country as a whole, but it isn't inherently going to make other people's student loans more difficult to pay off.
- tsunamifury 9y ago
  Uh, extended graduated loan repayment with Libor variable rate, sir.
- downrightmike 9y ago
  We are kind of in the same place as the 2008 crisis, except the sub prime mortgages have been extrapolated out a level. The comercial product being sold today is the rent collected from the properties and the mortgage is the collateral. So if the renter can't pay, kick them out, The market shouldn't tank all at once, it will continue to go up 20% a year until nearly no one can afford to live in a house period. Then crash. http://www.motherjones.com/politics/2014/01/blackstone-rental-homes-bundled-derivatives http://www.motherjones.com/politics/2014/01/blackstone-renta...

deleted 9y ago

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manacit 9y ago

I don't know if it's a "bubble" (I am not qualified to say that), but I can't imagine that the current trend with student loans will continue. Looking at the numbers for someone entering college in 2017, it feels nearly predatory what a good portion of private and out of state colleges are charging. Even with financial aid, $30-40k a year for 4-5 years is insane. I was fortunate enough to have parents who made saving for my college a priority, but watching them go through the same dance with my younger brother makes me wonder how most people get it done. There's a huge value in going to higher education, but the ever increasing cost and amount of debt people are taking on is setting everyone but the top 10% of graduates up for a life of being in debt, which is kind of horrifying. Especially since they are debts that are impossible to shed through bankruptcy.

jlarocco 9y ago
> There's a huge value in going to higher education, but the ever increasing cost and amount of debt people are taking on is setting everyone but the top 10% of graduates up for a life of being in debt, which is kind of horrifying. Especially since they are debts that are impossible to shed through bankruptcy. I'm not sure you can make a blanket statement like that. The reason all these student loans have become a problem is that objectively a lot of degrees don't have a huge value. People are borrowing insane amounts to become the billionth undecided communications major and it doesn't make any sense at all. It's almost like we've cut k-12 education funding (and quality) so low that people need to go to college just to get the education they should have received in high school.
ProfessorLayton 9y ago
I definitely agree that rapidly rising education costs are a huge issue and need to be addressed. However, most (67%) undergraduate student loan amounts are for less than 20K[1] At 6.8% interest and 10 year repayment that comes to about $2,761 per year, with interest that can be paid with pre-tax money. Yes, thats a hefty amount to many, but earnings with a college degree are still much more than enough to offset that burden. Furthermore, 42% are for less than 10k. The student loan debt crisis doesn't seem like all doom and gloom just yet. [1] https://trends.collegeboard.org/student-aid/figures-tables/distribution-borrowers-average-balance-2015 https://trends.collegeboard.org/student-aid/figures-tables/d... Yes its from 2015, but I can't imagine the distribution has changed so much that it is irrelevant. According to Wikipedia, 39.9% owed less than 10k in 2012 [2]. https://en.wikipedia.org/wiki/Student_loan_default_in_the_United_States#/media/File:U.S._Student_Loan_Debt_Distribution_Q4_2012.png https://en.wikipedia.org/wiki/Student_loan_default_in_the_Un...

jjawssd 9y ago

Germany provides excellent educational opportunities in many fields for American citizens at close to zero out of pocket expense for the student. Google "Germany Erasmus".

pilsetnieks 9y ago
Erasmus is a EU programme for student exchange between cooperating universities for up to a year, it's not relevant in this case. However, they should look at German universities in general because they are practically free for anyone.
- vadym909 9y ago
  Surprised why more Americans don't explore colleges in low tuition countries.
- utternerd 9y ago
  "Free" meaning coercion via the state to fund other people's pursuits. Perhaps we should look at why costs are rising? People need to seriously evaluate if it's really needed for them. I reject your notion that everyone, or even most people need a college degree. (I didn't, and I live quite comfortably thanks to tech with a 6 figure salary) Part of the problem is exactly that we're subsidizing many people, forcing more scarcity and leading to higher prices. Using force to make someone else pay for my stuff isn't something I want to condone.
  - jjawssd 9y ago
    Germans gladly accept the state taking half of their paycheck for pursuits such as this.
sjg007 9y ago
True... If you are a qualified American applicant you should definitely consider getting your degree in Europe/England. It's a different system, perspective but worthwhile in the end. Certainly cheaper.

NTDF9 9y ago

Leave it to America to make children a pseudo-slave right when they enter adulthood.

dragonsky67 9y ago
It will be interesting to see if there is an uptake by employers of (cheaper?) employees who have gained knowledge/education via free/cheap online courses. In my experience of a couple of CompSci online courses they appear to be as effective (if not more) in imparting knowledge and skills. When employers can identify this and start to treat completion of these these courses with the same level of importance as from a "real" university then maybe things will start to change. The only thing I can see that will challenge this is the cultural indoctrination that seems to be part of the more esteemed universities. How much of the decision to employ somebody from a Harvard or MIT is knowing that the employee has been indoctrinated to think in a particular way?
Analemma_ 9y ago
It's how you can tell we have so much freedom and economic liberty.
- geogra4 9y ago
  Freedom in capitalist society always remains about the same as it was in ancient Greek republics: Freedom for slave owners

ryandamm 9y ago

An alternative view, and one I happen to subscribe to: a balance sheet analysis shows that US debt must go up over time to support exogenous capital flows. Whether US debt grows in the housing sector, student loans, revolving debt, etc is a function of internal, domestic dynamics (including laws, local economic structure, etc). But the total capital flow into the US exceeds the outflow; that money ends up on a balance sheet somewhere. It's sort of the flipside to our conventional notion of trade balance, that the capital account must be equal and opposite. The difference is that capital flows are now 4-5x what's necessary to account for trade, so it's really capital movements wagging the trade dog. The net effect of inbound capital flow into the US is people must consume more than they produce, to absorb the additional capital. That is debt. And that debt ends up somewhere, either on the government's balance sheet, in the corporate sector, or households. Major hat tip to Michael Pettis for his work describing this. His writings are dense but very digestible (http://carnegieendowment.org/chinafinancialmarkets/ http://carnegieendowment.org/chinafinancialmarkets/). [edited a typo]

ced 9y ago
I'd like to understand this better. There's two villages. A businessman from village B comes to village A and buys a store from Bob for 100$. Bob keeps the money for a rainy day. Where is debt increasing?
- kcanini 9y ago
  In this case, the net capital flow is zero. $100 is transferred from B to A, and a business worth $100 is transferred from A to B.
  - ryandamm 9y ago
    There's merely a transfer of liquidity if the two villages share a currency. But that's a delicate equilibrium; to wit, the Euro area, where capital flows can't be balanced by the exchange rate mechanism, so they're balanced by unemployment. Pettis does a better job of explaining (my previous, insanely-long-winded post is exhibit A), but the net result of unbalanced capital flows is typically an increase in debt, which is often manifested in the unemployment rate for an open economy. That's basically the story in peripheral Europe right now; Greece suffered more from a fixed exchange rate with Germany than from corruption and tax avoidance. At least, if you subscribe to the balance sheet analysis.

rrggrr 9y ago

Keep in-mind this household debt is above and beyond each household's share of their municipal, county, state and federal debt. If you live in LA County, CA: - about $4,200 in State Debt. - roughly another $4,000 or in LA County debt. - $161,000 in federal debt. - $16,000 in credit card debt on average. - Car loan, home payment, etc. And on average your savings are minimal. Most importantly, if this isn't you, its still someone you'll be bailing out through higher taxes and/or some other shared burden. Ironically, the more indebted we become the more dependent we are on our government to address the problems widespread indebtedness creates. This may explain why efforts to enact economic growth policies that restore 5-6% GDP growth are met with all talk and no action in most state capitals and Washington, D.C. Its almost as if they wish to intentionally drive the the country over the fiscal cliff.

seoguru 9y ago
$161K in federal "debt" AKA net financial assets of the private sector. The "debt clock" should be renamed the "private sector savings clock". The monopoly issuer of the dollar is the federal government. https://www.youtube.com/watch?v=c4sD-JDVwwQ https://www.youtube.com/watch?v=c4sD-JDVwwQ and for the conspiracy theorists who deny the US government as the monoploy issuer: http://elliswinningham.net/index.php/2016/12/30/ridiculous-notion-federal-reserve-private-bank-concerning-persons-peddle-nonsense-final-words-subject/ http://elliswinningham.net/index.php/2016/12/30/ridiculous-n...
tupshin 9y ago
I was with you until the end. What policy proposals do you think would realistically restore 5-6% growth?
- paulddraper 9y ago
  Not the OP, I'm guessing lowering corporate tax rate, and similar measures to bring foreign production home.
godtoldmetodoit 9y ago
What economic growth policies could we enact that would result in 5-6% GDP growth? From my admittedly limited understanding, that seems to be quite the stretch.

btilly 9y ago

This is very worrisome. This is ballooning student debt. And unlike other forms of debt, you don't get to discharge student debt in bankruptcy. So..plan a career, get higher education, have your plans disrupted, and your life is ruined with no escape. Enjoy the 21st century. What is really sad is that there is no evidence that colleges are providing a better product. In fact the switch to grad students and adjunct faculty means that the actual delivery of their education should be cheaper. (Of course universities are getting less efficient, so it isn't. But the cost of classroom instruction time is not what is going up...)

WatchDog 9y ago

According to the public OECD data [1] the US household debt as a % of disposable income is on a downward trend. [1]: https://data.oecd.org/chart/4Qct https://data.oecd.org/chart/4Qct

tracker1 9y ago

How is having a higher percentage (double) of student loan debt that should be payable in a few years today any better than higher mortgages... it seems to me, this is a bad trend in general... :-/

manacit 9y ago
Considering the collateral against that student loan debt is nothing (hence them not being dischargeable in bankruptcy), I would think it's much worse than an increase in mortgage values. Of course, there have been other articles on the HN front page as recently as today talking about rising home costs as well. America (and the world? I don't feel qualified to say that) has a very odd relationship with debt, and it's driving all sorts of weird societal behaviors, like taking $100k+ in debt to get a college degree. I don't forsee it ending well.

thinkling 9y ago

$600B additional student debt over 10 years sounded high to me, so I did the ballpark check. $600B over 10 years is $60B/year. There are about 20 million college students [1]. That means $3000 per student per year on average. If loans are paid back over 10-20 years, this really says that students are borrowing $3000 more per year than they were 10-20 years ago. The article suggested that borrowing was about $600B total, 10 years ago, so essentially it has doubled. FWIW, CPI inflation over the last 20 years is ~50%, the other 50% is either real increase in borrowing or due to the fact that college tuition rates have been increasing faster than inflation. [1] https://nces.ed.gov/fastfacts/display.asp?id=372 https://nces.ed.gov/fastfacts/display.asp?id=372

Spellman 9y ago
Tuition and Room and Board are increasing way faster than inflation. https://inflationdata.com/Inflation/Inflation_Articles/Education_Inflation.asp https://inflationdata.com/Inflation/Inflation_Articles/Educa... CNBC has a fun infographic interactive from 2014 to look at where those increases are going. http://www.cnbc.com/2015/06/16/why-college-costs-are-so-high-and-rising.html http://www.cnbc.com/2015/06/16/why-college-costs-are-so-high...
swyx 9y ago
fantastic math and well reasoned. thanks for sharing.

theprop 9y ago

Yes, the student debt growth is unsustainable. It's up 10x in a bit over 10 years. Unbelievable!! There are only three things whose relative cost has gone up in the past 40 years: education, health care, and housing. It's also amazing to me is that total household debt is 12.5 trillion, while the federal debt is just about $20 trillion. In $12.5 trillion so many people have gotten an education and own a home. What exactly did anyone get with that $20 trillion the federal government has spent?

spydum 9y ago
Opportunity.

theprop 9y ago

This page has fantastic data: http://www.usdebtclock.org/# http://www.usdebtclock.org/# Another stunning data point is that in the wealthiest, most productive society that's ever existed, over 40 million people are on food stamps!

dhf17 9y ago

I work at a major state university that is claimed to be one of the most efficient in the US. On the administrative side it is a disorganized cluster bomb, full of frivolous spending, wasteful processes, and is years behind in technology and software. The things I've seen people manually doing on a computer all day... Throw on top the spending on social justice initiatives and you have your self a fat burden to pass on to students.

thatwebdude 9y ago
When was any university ever efficient? When they wanted me to pay a parking ticket. They had that shit down to an exact science.

mleonhard 9y ago

The last paragraph makes the whole article seem like an advertisement: "That made last month feel like an opportune time for Caitlin Farrell, 34, and her husband to buy their first home, a 1,500-square-foot, two-bedroom house in Sacramento. Ms. Farrell, who works as an education policy researcher, got her home loan from SoFi, a start-up online lender that moved into the mortgage market last year."

cheriot 9y ago

FYI, it's not adjusted for inflation so in real terms we're likely under the peak. The article talks a lot about debt with no mention of the income supporting it, which is a glaring oversight for any kind of financial analysis. All I can find quickly are median real numbers through 2015. It's not pretty. https://en.wikipedia.org/wiki/Household_income_in_the_United_States#/media/File:US_Real_Household_Median_Income_thru_2014.png https://en.wikipedia.org/wiki/Household_income_in_the_United...

easilyBored 9y ago

US Household Debt Surpasses 2008 High Yeah but this time is different :). Memo to self: looks like US stock market goes from feast to famine in 10 year cycles. Sell now and buy at 40% discount 1-2 years later. Rinse. Repeat

nomercy400 9y ago

The 100% chart is quite deceptive. Student loans take a larger share of the debt. Is that because increased tuition fees (probably), is that because more young people have become students (ie. higher education available to more people), is it because young graduates won't buy a house and still live with their parents (and thus stay in the Student Loans category instead of moving to the Mortage category) and opt for a car instead (thus moving part to the Auto Loans category)? Is it because houses (and thus underlying loans) are cheaper? Basically all this 100% chart says is that people are taking out less of a loan for a house.

danesparza 9y ago
I would disagree with your last statement. The chart is ambiguous (which is just poor reporting on the part of NYTimes). It's unclear if auto loans have grown, student loans have grown, the average home loan has shrunk (or just gotten paid down since 2008), or if there is another effect in play. The 'percentage share of consumer debt' each item is isn't a useful fact on it's own.

batushka 9y ago

From the state point huge student debt is wonderful. Fresh workforce starts with negative balance: they are vulnerable and controllable (trying to pay out it or begging for mercy to aid with debt).

dx034 9y ago

Why not go to Germany, get a degree there (many universities offer english speaking courses) for free? You end up with much less debt (if any) and have some additional experience. I studied in Germany in English and there were a lot of people from all over the world in my course (only 20% from Germany) but there wasn't a single person from the US. Maybe the Uni wasn't as good as Harvard but certainly better than many colleges you'd find in the US. What keeps US students from coming to Germany and study there? It shouldn't be a visa problem nor language.

cr1895 9y ago
>What keeps US students from coming to Germany and study there? Increasingly more Americans are studying in Germany (and elsewhere). http://www.dw.com/en/leaving-the-us-for-a-german-degree/a-18599858 http://www.dw.com/en/leaving-the-us-for-a-german-degree/a-18... But, I think you underestimate how difficult it is to move to another country. Language, visas (and other bureaocracy) are indeed issues, as are uprooting one's life and moving to a foreign place; no friends, family, familiarity. Of course studying in Germany or the NL or another country where the education is taking place in English is less of a barrier than moving to a place where that isn't the case, but it is a barrier nonetheless. It can be nervewracking and overwhelming. It's a major step; much more so than simply moving to another US state for college, for example. I say this as someone who left the US years ago to study. I adapted quite well, but I recognize what a big shift it can be.
- saiya-jin 9y ago
  What you describe are not drawbacks, but for young people actually additional benefits - challenges associated with move give valuable experience for life and build character - exactly what young need. It is a major step? Of course, but there are plenty of major steps in life, it's not supposed to be a static and predictable set of comfortable experiences. That would be actually a definition of boring life...

MaysonL 9y ago

The amount of debt may surpass the 2008 high, but the debt service required is still near a four decade low.[0] [0]http://cepr.net/blogs/beat-the-press/tell-the-alarmists-to-calm-down-the-debt-crisis-is-not-coming-back http://cepr.net/blogs/beat-the-press/tell-the-alarmists-to-c...

stillhere 9y ago

"People don't own their things. The banks do." -Varg Vikernes

dhf17 9y ago

How to graduate with little to no debt and no scholarship: - Go to community college and live at home for the first two years - Work part-time even if it takes you longer to finish - Don't get a fracking auto loan. A well maintained 90s Japanese car will go a long way. If you can program, basic car mechanics is easy. - Don't pay out of state tuition - If your going for an MS, get a basic full time job at a university first (A lot of schools have tuition waivers for employees) - Don't YOLO on someone else's dime, if you're frugal and modest you can do it later on your own.