Boom/Bust
by Richard Florida
Mark Thoma points to San Francisco Fed research on the lasting effects of the past decade's run-up in consumer debt and current "deleveraging" on the U.S. economy and American consumers.
Mark Thoma points to San Francisco Fed research on the lasting effects of the past decade's run-up in consumer debt and current "deleveraging" on the U.S. economy and American consumers.
U.S. household leverage, as measured by the ratio of debt to personal disposable income, increased modestly from 55% in 1960 to 65% by the mid-1980s. Then, over the next two decades, leverage proceeded to more than double, reaching an all-time high of 133% in 2007. That dramatic rise in debt was accompanied by a steady decline in the personal saving rate. The combination of higher debt and lower saving enabled personal consumption expenditures to grow faster than disposable income, providing a significant boost to U.S. economic growth over the period.
In the long-run, however, consumption cannot grow faster than income because there is an upper limit to how much debt households can service, based on their incomes.
No comments:
Post a Comment