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The idea that most American households are perched precariously on the edge of financial ruin is a favorite trope of politicians, but it is pure fiction. Just l

The idea that most American households are perched precariously on the edge of financial ruin is a favorite trope of politicians, but it is pure fiction. Just look at consumer household data since the COVID crash in Q2 2021. If folks were on the edge of bankruptcy, the 2020 crash (which sent unemployment through the roof--briefly into the teens!) should have wreaked havoc, right? What should have happened to credit card debt? It should have skyrocketed, right? Instead, as of Q2 2021 (a year after unemployment peaked), consumer credit card debt was DOWN by $106 billion and Home Equity debt was down $64 billion. Over the same period, Auto Loan debt went up by $70 billion, and mortgage debt went up by 730 billion! In other words, during the worst economic crisis in a decade, Americans were paying off debt and buying cars and houses! Does this sound like the behavior of people who are struggling to make ends meet? [0]https://www.cnbc.com/2021/08/03/household-debt-jumps-by-the-most-in-14-years-to-nearly-15-trillion-in-the-second-quarter.html https://www.cnbc.com/2021/08/03/household-debt-jumps-by-the-... [1]https://fred.stlouisfed.org/series/UNRATE https://fred.stlouisfed.org/series/UNRATE

bradlys 5y ago
Wouldn’t debt going down generally mean people were unable to leverage more debt? In that instance of home equity debt going down - wouldn’t it mean that the mortgages were being paid off faster than they were being made? (In absolute dollar sense) To me - that sounds like people stopped getting mortgages… Which is an affordability crisis. Same with credit card debt.
- marcusverus 5y ago
  > Wouldn’t debt going down generally mean people were unable to leverage more debt? People were clearly able to leverage more debt based on the auto- and mortgage debt figures. Credit Card debt would not go down if people were strapped for cash. If you're worried about making rent next month, why would you be paying more than the minimum on your credit card? You wouldn't. Hence, if credit card debt is going down, it's because people had cash on hand and weren't immediately concerned about their ability to pay the bills--hence my point; falling cc debt indicates that people were not in a precarious position. > In that instance of home equity debt going down - wouldn’t it mean that the mortgages were being paid off faster than they were being made? (In absolute dollar sense) To me - that sounds like people stopped getting mortgages… Which is an affordability crisis. You're confusing Home Equity debt with Mortgage debt. HE debt is when someone borrows against their home equity so that they can 'spend' the equity they have in their home. It's low-interest, collateral-backed consumer debt. This type of debt went DOWN, indicating (again) that people had cash on hand and didn't have an immediate need for it. Auto- and Mortgage debt went UP, indicating that people were buying cars and houses. This is evidence of something, but it's not evidence that the American people were struggling to make ends meet during the crash. The fact that Americans were paying down debt and buying cars and houses during an economic crisis clearly belies the idea that most American households are on the verge of financial ruin. They said the same thing before the crisis, and folks clearly did just fine.
anm89 5y ago
from the perspective of many in the middle class it wasn't the worst economic crisis in a decade, it was the biggest windfall of a life time. which exactly aligns with the fact that people were reducing debt. Who exactly was this period such a crisis for? The crisis is coming now for the people who need to buy inflated goods as the stimulus is wearing off.

bradlys 5y ago

Wouldn’t debt going down generally mean people were unable to leverage more debt? In that instance of home equity debt going down - wouldn’t it mean that the mortgages were being paid off faster than they were being made? (In absolute dollar sense) To me - that sounds like people stopped getting mortgages… Which is an affordability crisis. Same with credit card debt.

marcusverus 5y ago
> Wouldn’t debt going down generally mean people were unable to leverage more debt? People were clearly able to leverage more debt based on the auto- and mortgage debt figures. Credit Card debt would not go down if people were strapped for cash. If you're worried about making rent next month, why would you be paying more than the minimum on your credit card? You wouldn't. Hence, if credit card debt is going down, it's because people had cash on hand and weren't immediately concerned about their ability to pay the bills--hence my point; falling cc debt indicates that people were not in a precarious position. > In that instance of home equity debt going down - wouldn’t it mean that the mortgages were being paid off faster than they were being made? (In absolute dollar sense) To me - that sounds like people stopped getting mortgages… Which is an affordability crisis. You're confusing Home Equity debt with Mortgage debt. HE debt is when someone borrows against their home equity so that they can 'spend' the equity they have in their home. It's low-interest, collateral-backed consumer debt. This type of debt went DOWN, indicating (again) that people had cash on hand and didn't have an immediate need for it. Auto- and Mortgage debt went UP, indicating that people were buying cars and houses. This is evidence of something, but it's not evidence that the American people were struggling to make ends meet during the crash. The fact that Americans were paying down debt and buying cars and houses during an economic crisis clearly belies the idea that most American households are on the verge of financial ruin. They said the same thing before the crisis, and folks clearly did just fine.

anm89 5y ago

from the perspective of many in the middle class it wasn't the worst economic crisis in a decade, it was the biggest windfall of a life time. which exactly aligns with the fact that people were reducing debt. Who exactly was this period such a crisis for? The crisis is coming now for the people who need to buy inflated goods as the stimulus is wearing off.