Charts of Household Debt showing 7 years of overhang

Here is my conclusion, that we are 3 years into a 7 or more year deleveraging of household debt. The blue is actual through the first quarter of 2010. The red is trendline and the transparent blue box is my estimate for household debt to get back to trendline. You can download the data from this St. Louis Fed page.

 

Here is the same chart with data from 1980 instead of all the way back to 1953.

 

The original Fed chart looks like this:

OK, and now to show you there is nothing up my sleeve, here is the chart showing trendline. I used household debt data from the fall of 1983 start of the economic expansion through the spring of 2004, which was when Alan Greenspan declared that there was no deflation, but oddly didn't raise rates fast enough, the seeds of the credit bubble to follow. I used the Excel trenline function, using a simple linear trendline. You can select your own data and get different results, but I think I am pretty close.

Comments

[DG]

Please explain why a linear trend line is used rather than an exponential extrapolation? Perhaps it is reasonable for a short period of time to use a linear model, especially because GDP and household income have slowed. However, over a seven year period, using a linear trend line does not make sense to me.

[RichL]

A more appropriate way to present the data is with logarithmic scale. A 1980 dollar represents a much higher debt than a 2010 dollar.

If you think about it, the debt burden on the consumer in the 1980's, when mortgage interest rates were ~14%, is rather more crushing than the current rate environment. There is a refi boom going on, and if the rules on LTV are altered by government fiat, there will be a substantial increase in personal income due to the debt relief from lowered interest payments.

[Ben bernanke]

Andy you are completely wrong on deflation (and several other topics) - we are now seeing the monetization of the US dollar. Hyperinflation will follow.

This is a race to the bottom folks and you're all going to be a LOT poorer by the end of it.

[MEJIAAlisha19]

People deserve very good life time and home loans or short term loan can make it much better. Just because freedom is based on money state.