by Frank James
The Federal Reserve reported today that households have lowered their debt for the first time in the five decades that such records have been kept.
The data come from the Fed's Flow of Funds report.
Here's the Associated Press's report:
WASHINGTON (AP) -- U.S. households, hit by declining home values and stock market losses, cut back on their debt levels for the first time on record.
The Federal Reserve says in its quarterly look at consumer and business finances that households reduced their debt levels by 0.8 percent at an annual rate in the July-September period, the first drop on records that go back more than 50 years.
The Fed report shows that households' net worth fell by 4.7 percent in the third quarter to $56.5 trillion, reflecting the hit Americans are taking as the value of their homes and investments decline.
It would be useful to know what part of this debt reduction is voluntary and how much is involuntary. There's no way of knowing from the Fed data. For instance, foreclosures would probably account for a lot of the household debt reduction and most of those foreclosures are arguably involuntary.
So the debt reduction may not speak as much to a new thriftiness among Americans as much as it speaks to the rug in many instances being literally and forcefully pulled out from under them.
Comments
One reason may be that the credit is no longer there as home prices fall so does equity in that home.
Posted by: bill r. | December 11, 2008 1:03 PM
Good point, Bill R. As home equity has dropped, many homeowners have lost their home equity lines of credit. And that would show up in these numbers too.
Posted by: Frank James | December 11, 2008 1:42 PM
Recently got told by Chase Bank that they were canceling one of my credit cards. I had no balance on it and hadn't used it in a couple of years. It had about a $20k limit on the card. My guess is this falls under the category of "having it yanked out from under you".
No big deal though, as I'm going to get a replacement card from my local credit union, who, unlike Chase, actively wants the business.
Posted by: HB | December 11, 2008 2:48 PM
I recently got one of those letters from Chase as well. I never used the account so I just chalked it up to them cleaning house and getting rid of unecessary data base files.
Posted by: lochnessmonster | December 11, 2008 3:08 PM
Consider this a blessing in disguise. In all of its shortsighted splendor, this nation has embraced for too long the ideas that debt is an asset and that it is tolerable to live beyond one's means. The first idea is false and the second is the source of our self-inflicted injuries. The overextension of credit was the cause of the Great Depression, as it is largely the cause of our current catastrophe. Maybe this will help people understand (and some for the very first time) that living under the influence of bad ideas can have detrimental long-term effects.
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(He now gets off his soap box.)
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(Elvis has left the building.)
Posted by: John W. | December 11, 2008 4:19 PM
Unfortunately, with the advent of Reaganomics, the virtue of saving disappeared. It has been a debt fueled money party for 28 years.
It was done through lowering interest rates to the point a bank account paid nearly nothing and a CD little better. I used to have a savings account that paid 5%. Now it's a bad joke.
This was a conscious effort to get people to move money from FDIC insured banks to the stock market.
Why? That way it could be seized by the hidden manipulators on Wall St.
Have you ever noticed that when the market drops 200 points on one day but gains 250 points the next you don't really recoup your losses?
That's cause somebody else has pocketed your money by shorting your portfolio.
God, they must laugh at us when they are toasting each other.
After your bank interest was ruined they wanted your 'defined benefit retirement' money also, so they had their employees pass laws to make those obsolete and make 401k's the next great thing. Well, they now have 2/3 of your 401k money.
Privatization of Social Security is another money grab (of your $$) by the oligarchs of Wall St.
They want it all.
Posted by: C.Morris | December 12, 2008 9:28 PM
Unfortunately, with the advent of Reaganomics, the virtue of saving disappeared. It has been a debt fueled money party for 28 years.
It was done through lowering interest rates to the point a bank account paid nearly nothing and a CD little better. I used to have a savings account that paid 5%. Now it's a bad joke.
This was a conscious effort to get people to move money from FDIC insured banks to the stock market.
Why? That way it could be seized by the hidden manipulators on Wall St.
Have you ever noticed that when the market drops 200 points on one day but gains 250 points the next you don't really recoup your losses?
That's cause somebody else has pocketed your money by shorting your portfolio.
God, they must laugh at us when they are toasting each other.
After your bank interest was ruined they wanted your 'defined benefit retirement' money also, so they had their employees pass laws to make those obsolete and make 401k's the next great thing. Well, they now have 2/3 of your 401k money.
Privatization of Social Security is another money grab (of your $$) by the oligarchs of Wall St.
They want it all.
Posted by: C.Morris | December 12, 2008 9:30 PM