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Forgive Us Our Trespasses?
The Rise of Consumer Debt in Modern America

(Released February 2009)

  by Matthew Ruben  


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Neither a borrower nor a lender be - Polonius, Hamlet

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Since 1975, total household debt in the US has grown by a factor of 41/2 when adjusted for inflation. Household debt from mortgages over that same period has similarly grown by a factor of 51/2. In fact, total household debt in the US increased every single year from 1982 to 2007, even when factoring in inflation, except in the recession year of 1991. (Federal Reserve Board; Crawford and Katz) Through good times or bad, while incomes have risen or fallen, and when interest rates have been high or low, consumer debt in the U.S. has climbed ever skyward.

But while consumer debt levels have consistently risen over the past 30 years, the rate of debt growth has increased dramatically since 2000. Between 2000 and 2007, the total debt taken on by households nearly doubled in a period when consumer prices increased less than 20 percent. Experts point to a variety of reasons why debt levels have soared. For many Americans, the cost of medical care and health insurance has outpaced income and earnings growth. Interest rates have been kept low, and home prices skyrocketed until 2007, leading to a substantial increase in home loan borrowing. Mortgages traditionally represent the largest proportion of consumer debt. An oft-repeated statistic holds that the average American now owes more than he or she makes annually. Factoring in mortgages, total household debt stood at $13.9 trillion in 2008. (Federal Reserve Board)

rising household debt
The volatility in housing markets and expansion of mortgage credit since 2000 - and the subsequent rise in delinquencies and foreclosures - undoubtedly explains a significant portion of the total rise in consumer debt. Home mortgages accounted for 69 percent of total household debt in 2000; at the start of 2009, the figure has risen to 76 percent.

foreclosure sign
It would be impossible to completely extricate housing debt from the debt equation that American consumers are facing today. But even if we discount the great expansion of mortgage debt since 2000, the growth of non-mortgage consumer debt over the same period has still outpaced the growth of inflation, as well as the growth in consumer prices for food, housing, energy, and medical expenses. Credit card debt is at a historic high. Payday loan operations are flourishing. Students are acquiring high levels of debt well before they face the prospect of owning a house.

This Discovery Guide explores the nature of consumer debt, the reasons for its historic rise, and the implications for both consumers and the economy at large.

Go To Understanding Consumer Debt

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