Not even a hint that the federal deficit added that much income and net financial assets/savings to the other sectors, to the penny:

Shrinking household debt is good sign for 2013 economy

By Tim Mullaney

September 1 (USA Today) — Consumers’ out-of-control debt loads helped spark the recession, but households are rapidly getting their balance sheets back into shape.

Overall consumer borrowing could return to its long-term norms by late next year — and that could help spark a late-2013 rebound in consumer spending, economists say.

Of course, it depends on consumers, who have been hurt by falling incomes and house prices, being willing to spend money once they’re in better fiscal shape.

The combination of falling debt loads, a rising housing market and improving job market could boost consumer spending growth to 3.5% by late next year — double what the economy saw in this year’s second quarter, said Moody’s Analytics economist Scott Hoyt.

Even more modest growth of about 2.7% could push job gains back to the 200,000-plus monthly pace seen early this year, said Richard Moody, chief economist at Regions Financial.

“Things will start to look better in 2013,” if Congress and the president resolve the so-called fiscal cliff without causing a recession, Moody said.

“The housing market is healing, and the drag from falling state and local government spending should be moderating.”

Consumers went into the recession carrying debt of nearly double the nation’s gross domestic product. That’s down to below 85% now, and on pace to approach 75% by late next year, Moody predicts.

Harvard economist Kenneth Rogoff said consumer debt is now headed in the right direction, but cautioned it might not translate quickly into more economic growth.

“The thing everybody grapples with is, ‘How much (debt) is normal?’ ” Rogoff said. “There will be a long memory of this crisis. It may be the biggest question mark in terms of trying to time this recovery.”

Revolving debt, mostly credit cards, has fallen 19% since 2007. Revolving balances dropped at a 6.8% seasonally adjusted annual pace in July, after falling 4.5% in June, the Fed said last week. Non-revolving debt has risen, mostly because of student loans.

If consumer spending doesn’t come back strongly, it might be because incomes are still well below where they were before the recession, and that households lost about $7 trillion of home equity as housing prices plummeted. That could make them keep the brakes on spending for a while longer, Hoyt said.

On the plus side, low interest rates have pushed the ratio of consumers’ monthly rent and debt payments to their income to the lowest level since 1984, American Bankers Association chief economist Jim Chessen said. That’s a function of slightly lower debt and much lower rates, he said.

“There’s a lot of pent-up demand,” Chessen said.

The Federal Reserve is still worried enough that it launched a third round of bond purchases last week, vowing to pump $40 billion a month into the economy until the 8.1% unemployment rate falls.

Fed Chairman Ben Bernanke said the move could encourage consumer spending, in part by bolstering housing values.

At the same time, members of the Fed’s interest rate-setting committee raised their economic forecasts for next year. Committee members think the economy will grow between 2.5% and 3% next year, up from earlier forecasts of 2.2% to 2.8%.

15 Responses

  1. Right, a lot of pent up demand for higher unearned income. At some point the bond clippers are going to have to figure out they’re not going to get it.
    Also, now that people have figured out there are more fun things to do than acquiring, owning and securing “stuff,” the urge to seek happiness in a new dress is not likely to return.

  2. More like there’s a lot of pent-up supply….

    I also like the start – “Consumers’ out-of-control debt loads helped spark the recession…”. Really, I thought it was sparked by the collapse of the financial sector.

  3. Yes, I think you can even state that the whole increase in federal deficit went to the domestic private sector, given that the trade deficit did not change much during this period.

  4. Fed Chairman Ben Bernanke said the move could encourage consumer spending, in part by bolstering housing values.

    It’s only logical that if a guy’s house could conceivably be sold for about what he paid for it that he’d want to go buy a new speed boat or maybe 250 lbs. of pork or a used snow blower.

  5. Washington Post reports that in the race to better represent “the nation’s gaping budget deficit” … Romney is in danger of falling behind Obama. That’s supposedly the only issue where Obama hasn’t been “leading” Romney.

    It’s a sad day when candidates vie to be most out of paradigm in order to win election to a leadership position.

    When supposed leaders have to prove that they’re more wrong than the other guy to get elected … you’d normally want to hedge your bets. We better hope the USA is resilient enough to survive ignorant leadership. Rome wasn’t, but that was a long time ago.

    1. @roger erickson,

      It’s ignorant people as Judge Souter describes in this 7 min clip. He decries what he calls “pervasive civic ignorance.”

      “I don’t worry about our losing a republican government in the United States because I’m afraid of a foreign invasion, he said. “I don’t worry about it because of a coup by the military, as has happened in some other places. What I worry about is that when problems are not addressed people will not know who is responsible, and when the problems get bad enough — as they might do for example with another serious terrorist attack, as they might do with another financial meltdown — some one person will come forward and say ‘Give me total power and I will solve this problem.’”

      “That is how the Roman republic fell,” Souter continued. “Augustus became emperor not because he arrested the Roman senate. He became emperor because he promised that he would solve problems that were not being solved.”

      “If we know who is responsible, I have enough faith in the American people to demand performance from those responsible. If we don’t know, we will stay away from the polls, we will not demand it and the day will come when somebody will come forward and we and the government will in effect say, ‘Take the ball and run with it, do what you have to do.’ That is the way democracy dies.”

      Raw Story (

      1. Which, BTW, is why I am so happy the MMT people are doing the Modern Money and Public Purpose series at Columbia Univ Law School.

        I wish I had the dough to make this required watching at every US high school.

        Warren, since you are a participant, could you suggest to the producers that they put the series up at iTunes Univ? And contact Apple to ask them to promote it as an inclusion on their regular website?

      2. @MRW,

        Augustan and later Rome was called by Gibbon “the period in the history of the world during which the condition of the human race was most happy and prosperous”. Democracy is certainly no guarantee of either of those things.

  6. yes but what is the motivation for lowering their debt? Do you think it’s to go buy a brand new house? Re-model the kitchen? Buy a new entertainment center? How about a cruise?

    Everyone is scared ****less over the thought of no social security, no pension, no 401k, no job security, no safety net, etc. People are saving as a means of survival and think/feel that if they can even get one rental property (maybe a mortgage paid off too!) they’d be thanking their lucky stars (while rates are still low!).

    I don’t think these politicians and economists have factored in the positive relationship between the increase of savings desires to the increased probability of getting their “national fiscal house in order”.

    These retards are creating their own frankstein knowingly or not.

  7. The only Debt i have is to Warren for having such a cool blog……

    BTW the fact that most peoples credit rating went in the toilet because half of them lost jobs or suffered pay cuts might have something to do with the topic

    Never mind running up credit cards buying 4 dollar a gallon gas

Leave a Reply to Dave Begotka Cancel reply

Your email address will not be published. Required fields are marked *