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Americans Hold Over $4.1T in Consumer Debt

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Re: Americans Hold Over $4.1T in Consumer Debt

#51

Post by mathattack »

NumberSix wrote: post #30

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_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…

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.

Re: Americans Hold Over $4.1T in Consumer Debt

#52

Post by dpweb »

NumberSix wrote: post #30

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_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…

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.

Re: Americans Hold Over $4.1T in Consumer Debt

#53

Post by aaronblohowiak »

IshKebab wrote: post #24
omilu wrote: post #2

Combine low wages, increasing loan delinquency, and the probable start of trade wars with mexico and china and I can't see how this doesn't turn out to be like 2008 on steroids.

Does America really have low wages? Granted, the lack of a minimum wage is crazy, but the median household income is $56k. Compare that to £23k in the UK.

You are comparing pre-tax income (USA) and post-tax (UK)! You also mixed your units. TO use net-adjusted disposable income, USA has 41k USD and UK 28k USD. Also, you'd need to adjust for the benefits you get from your government/employer (Health insurance) for a fair comparison. While American workers earn more than UK workers, that does not necessarily imply that the total cost of employment for UK employers is lower than total cost of employment for USA employers. I don't have that data handy.

Re: Americans Hold Over $4.1T in Consumer Debt

#54

Post by obstinate »

slg wrote: post #49
obstinate wrote: post #41

Earlier quoted context omitted.

I don't think the statement you're quoting is correct, however, they do tend to have a lower value. Here are some reasons: - Buying a foreclosed home is much more arduous due to bank processes, decreasing demand. - Foreclosed homes tend to be in worse shape. The owners may not have had the means or desire to maintain after realizing they would eventually lose the home.

You forgot the incentives for the seller. A home sale is likely the biggest transaction that most people are ever involved in. A traditional seller is more likely to hold off for the right buyer or price. For a bank, it is just one of many transactions. They are less likely to hold out for a specific price and will be happy to sell for 90 cents on the dollar to simply move on to the next transaction. >I don't think t…

I thought "naturally have a lower value" implied that there is something about foreclosure itself that reduces the value of a home. I don't think this is true. Rather, I think that foreclosure is covariant with things that reduce the value of homes. So I wanted to clarify that point. That's what I meant by disagreeing with the quoted statement.

Re: Americans Hold Over $4.1T in Consumer Debt

#55

Post by wtvanhest »

NumberSix wrote: post #30

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_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…

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.

Re: Americans Hold Over $4.1T in Consumer Debt

#56

Post by slg »

obstinate wrote: post #54
slg wrote: post #49

Earlier quoted context omitted.

You forgot the incentives for the seller. A home sale is likely the biggest transaction that most people are ever involved in. A traditional seller is more likely to hold off for the right buyer or price. For a bank, it is just one of many transactions. They are less likely to hold out for a specific price and will be happy to sell for 90 cents on the dollar to simply move on to the next transaction. >I don't think t…

I thought "naturally have a lower value" implied that there is something about foreclosure itself that reduces the value of a home. I don't think this is true. Rather, I think that foreclosure is covariant with things that reduce the value of homes. So I wanted to clarify that point. That's what I meant by disagreeing with the quoted statement.

Ok, I guess that is just a question of semantics. I likely could have phrased it better but the underlying point still stands that an increase in foreclosed homes will lower the overall home value in an area for the reasons we both listed.

Re: Americans Hold Over $4.1T in Consumer Debt

#57

Post by ac29 »

IshKebab wrote: post #21
DenisM wrote: post #4

One man's debt is another man's financial asset.

Yes but those assets are owned by the rich. I'd wager increased debt correlates strongly with increased inequality.

Those assets, if you're referring to consumer debt, are owned by anyone with a retirement account (or pension) with financial sector stocks in it. Considering that just about any diversified portfolio probably has a broad based US equity portion, that is probably the majority of employed people.

Re: Americans Hold Over $4.1T in Consumer Debt

#58

Post by runeks »

dpweb wrote: post #52
NumberSix wrote: post #30

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_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…

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.

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).

Re: Americans Hold Over $4.1T in Consumer Debt

#59

Post by tptacek »

dpweb wrote: post #52
NumberSix wrote: post #30

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_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…

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.

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).

Re: Americans Hold Over $4.1T in Consumer Debt

#60

Post by cylinder »

NumberSix wrote: post #30

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_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…

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.

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