US Household Debt Is Rising 60% Faster Than Wages, And One Rating Agency Is Worried

Tyler Durden's picture

In a report released today by DBRS titled "Consumer debt and debt burden", the rating agency which is best known for keep Italian debt eligible for ECB monetization at the peak of the European banking crisis, looks at the latest Quarterly Report on Household Debt and Credit issued by the NY Fed (discussed here previously) which showed that consumer debt for the third quarter of 2017 was approximately $12.96 trillion, representing an increase of $116 billion over the second quarter of 2017. The debt level for the first three quarters of 2017 has continued to increase above the previous record debt level which was established in the third quarter of 2008 as shown in Exhibit 1 below.

DBRS also highlights that not only did total debt levels increase, but their composition changed as highlighted in Exhibit 2 below.

The good news: total mortgage debt has decreased since 2008, to $8.743 trillion from $9.29 trillion, but as of the third quarter of 2017, still accounts for 67.5% of overall consumer debt.

The bad news: since 2008, the growth in total debt has been attributable to the auto loan and student loan sectors. Auto loan debt has increased by 50% since 2008, to slightly over $1.2 trillion from approximately $800 billion. The most dramatic growth rate, as Zero Hedge readers know well, has been in student loan debt which has grown by 122% since 2008, to $1.357 trillion from $611 billion.

But a bigger concern flagged by DBRS is that the growth in consumer debt is raising concerns when viewed in the context of the existing wage stagnation hampering the current economic environment. The rating agency cites a paper published in October 2017 by the Harvard Business Review which stated that the inflation-adjusted hourly wage has grown by only 0.2% per year since the mid-1970s and labor’s share of income has decreased to its current level of 57% from 65%.

Meanwhile, in the second quarter of 2017, wages were only 5.7% higher than they were a decade earlier. In comparison, the Federal Reserve Bank of New York/Equifax data shows that consumer debt growth over the same period was 9.3%.

In other words, the purchasing power of US households has been largely a function of rapidly rising debt, which over the past decade has risen 60% faster than wages.

There is another concern: while overall delinquency rates have stabilized in recent years, the one stubborn outlier remains student debt, where 90+ day delinquencies have risen to more than 10%.

This is a problem because as Bloomberg's Lisa Abramowicz writes, considering that GOP tax overhaul may eliminate tax deductions on interest on student loans, this debt load could become even more onerous.

It's not all bad news, however: as DBRS concedes, stabilizing delinquency trends imply that a tipping point has not yet been reached. There is also the suggestion that since there have been significant economic booms since the 1970s, during periods of persistent wage stagnation, the tolerance level for gaps in debt and earning power is quite large.

On the other hand, the rating agency also concedes that with consumer debt at all-time highs, and rising, as the debt/wage relationship seems to be entering a previously unobserved phase, "it seems prudent to closely monitor both components."  This is a "red flag" for the economy because as Abramowicz concludes, "should unemployment rates rise at some point, this balance could fall out of whack, exacerbating any economic downturn."

Of course, a variant perception on this threat is that once the economic fundamentals catch up with reality, and the US consumer is tapped out in a rising rate environment and crushed by the weight of $1.4 trillion in student loans, the Fed will promptly halt the current monetary tightening regime, and revert back to preserving the "wealth effect" with more ZIRP, QE and eventually NIRP. One look at the S&P confirms just how "worried" the market is about the current state of the economy...

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shizzledizzle's picture

Not worried enough to put honest ratings on financial instruments. 

Countrybunkererd's picture

Pay for Health Insurance "cash" and buy food (and everything else) on credit.  Yep, that is a GOOD sign.

Buck Johnson's picture

No shit, they won't give true inflation and leave out fuel and food (the biggest indicators of inflation).  They won't mark to market any of their financial instruments.  And with me My biggest debt is left over health bills and my student loan that I'm paying 420 a months and that is based on my income (gross, the idiots never want to base it on net and minus any other bills).

 

 

Blue Snowflake's picture

I pay my mortgage with credit cards

Osmium's picture

Ya, but do you then pay those credit cards with other credit cards?

Blue Snowflake's picture

Home. Equity. Line. Of. Credit.

JibjeResearch's picture

Then pay the HELC with Credit.... man works really well....

Blue Snowflake's picture

HELC is paid with Payday Loans which are then paid using a loan shark.

 

 

Countrybunkererd's picture

That is a great plan!!!!  Wish I thought of that 20 years ago...  I think to work it correctly, I need to find the loan shark (or two so I can pay the first using the second) first to work this the right way without a glitch.  And best of all nearly no paperwork!  LOL.  Do loan sharks take payments via a phone?  I might need to get a smartphone, think of the possibilities...

Blue Snowflake's picture

mine only accepts bitcoin. Don't ask how I get the bitcoin

Wang Dang SP's picture

So you're the guy making $7,000 a month selling his offspring.

Bemused Observer's picture

I've thought about some of those crazy things we did when this whole thing was really taking off...it seems so stupid now, so irresponsible. Yet so many of us did those things. Like use credit to pay back credit.

I think we fell into it because it all seemed so NORMAL at the time. There were so many new things hitting the markets, and so many rules were being stretched, broken, that I think we just assumed these things were part of the greater plan. We were TOLD they would, by 'experts', and the people we paid to represent US. This was the new finance, it was how things were being done these days...get with the program, or get left behind.

Well, it's all about greed now. But I wanted to remind folks that those of us who were around at the beginning didn't suddenly wake up one day and decide to become debt-saddled consuming monsters. It just all sounded so good at the time, so plausible, and we wanted so badly to believe...

Be careful when people you think you can trust tell you about something new, different, never seen before, and that you can violate the laws of physics to attain it. They lied to us then, and they are lying to you now.

Davidduke2000's picture

I , like many Canadians never had a mortgage , built my houses with my own cash. the last land I bought never had a mortgage on it since it was divided in 1954, few years ago I built a nice house on it mortgage free, but do not kid yourself, the city taxes are $8000 plus $2000 for school tax, I wonder how people who have a mortgage can pay and can pay the city and school taxes.

ParkAveFlasher's picture

The good news is that mortgage debt has decreased; the bad news is that no one is buying houses. 

No Time for Fishing's picture

Being the poor sucker who buys the market at the top sucks but at least you can hit close and go short, poor sucker who buys a house at the top just has to hope he never needs to sell or he'll eat his mistake big time. 

Bemused Observer's picture

Yeah, I really have to wonder about these buyers...are these actual families, or speculators?

Davidduke2000's picture

all the numbrs are bullshit because 2 days ago they said records homes are being sold new and used and the average price reached $400,000 , if true it suggest that people have new huge mortgages which does not jive with mortgages are lower, you see the government agencies talk from 20 sides of their mouth .

Peaole do not pay attention, so they can make them swallow anything they want

Cloud9.5's picture

Bankruptcies following foreclosures tend to wipe out mortgages.  Been there done that.

chubbar's picture

Who cares. None of this shit ever seems to make a difference anyway. The gov't will come up with a way to make sure it doesn't matter until they want it to matter.

Ghordius's picture

this: "The most dramatic growth rate, as Zero Hedge readers know well, has been in student loan debt which has grown by 122% since 2008, to $1.357 trillion from $611 billion."

my usual rant: it's... immoral

debt as such is just the other side of credit

a mortgage on a house, crushing you, putting you under water? there is escape: you leave the house to the bank

that's what bankers call collateral, the debt is on the collateral, i.e. the house

credit card debt, other personal debt? there is escape: default. painful, but sets you free

student debt? no escape. what is the collateral, there? literally... life. people

it was deemed immoral by the Babylonians, the Egyptians, the Chinese, the Romans, all the Ancients

except if you see slavery and debt serfdom/indenture as moral, that is. that of your... children, note

again: it's immoral. wake up, America

ParkAveFlasher's picture

And there was a great outcry of the people and their wives against their Jewish brethren. For there were those who said, “We, our sons, and our daughters are many; therefore let us get grain, that we may eat and live.”

There were also some who said, “We have mortgaged our lands and vineyards and houses, that we might buy grain because of the famine.”

There were also those who said, “We have borrowed money for the king’s tax on our lands and vineyards. Yet now our flesh is as the flesh of our brethren, our children as their children; and indeed we are forcing our sons and our daughters to be slaves, and some of our daughters have been brought into slavery. It is not in our power to redeem them, for other men have our lands and vineyards.”

And I became very angry when I heard their outcry and these words. After serious thought, I rebuked the nobles and rulers, and said to them, “Each of you is exacting usury from his brother.” So I called a great assembly against them. And I said to them, “According to our ability we have redeemed our Jewish brethren who were sold to the nations. Now indeed, will you even sell your brethren? Or should they be sold to us?”

Then they were silenced and found nothing to say. Then I said, “What you are doing is not good. Should you not walk in the fear of our God because of the reproach of the nations, our enemies? 10 I also, with my brethren and my servants, am lending them money and grain. Please, let us stop this usury! 11 Restore now to them, even this day, their lands, their vineyards, their olive groves, and their houses, also a hundredth of the money and the grain, the new wine and the oil, that you have charged them.”

12 So they said, “We will restore it, and will require nothing from them; we will do as you say.”

Then I called the priests, and required an oath from them that they would do according to this promise. 13 Then I shook out the fold of my garment[a] and said, “So may God shake out each man from his house, and from his property, who does not perform this promise. Even thus may he be shaken out and emptied.”

And all the assembly said, “Amen!” and praised the Lord. Then the people did according to this promise.

Nehemiah 5

Ghordius's picture

the highlight is there: "and indeed we are forcing our sons and our daughters to be slaves, and some of our daughters have been brought into slavery "

and the other is there: "It is not in our power to redeem them, for other men have our lands and vineyards. "

the King's outrage is that they can't be redeemed, note. the original problem, the source of it is that the sons and daughter were being pawned. in a system originally designed where they could be redeemed, but corrupted by the inclusion of foreigners into the system of ownership

note, also, that according to the law, then, no slavery exceeding seven years was allowed. technically, it's "debt indenture"... with term restrictions

see the story in the Bible where the guy serves such a term in order to marry his fiance. then he is "served" her sister, so he "serves" another seven years spell, and get's the girl he wanted, too

Bemused Observer's picture

Don't forget the morons ASKED for all these afflictions, back when they demanded a King to rule over them. God told them they didn't need one, wouldn't be a good idea, etc. Specifically listed many of these very afflictions as the likely result. But they wanted one anyway. God granted their wish.

It was one of those critical Biblical moments, when we learn that these people, despite seeing all God had done for them, STILL did not have faith in His promise and looked towards other humans for guidance. They'd pay lip service to God, but would never let Him take the wheel. So He said, "So fuck it then, you drive."

Now here we are, thousands and thousands of years later, hopelessly lost after losing the road, cursing at the map, the roads, fellow passengers. Except for God, who is stretched out in back, ear buds in, big-ass smile on His face.

Bemused Observer's picture

You don't have to make use of the exits they provide in order to escape. They won't 'allow' you to declare bankruptcy on a student loan, so if it is imperative you get out, you must default. As most students have nothing really worth seizing, there isn't much to take. Chances are they'd just draw up some stupid payment plan of 0$ a month indefinitely, while interest and fees stack up. Just to keep the loan 'alive' while you (hopefully) move into a better station in life...of course, by then you'll owe 50 million, and have to start the whole default process over again.

While that may not be the full-on escape you had in mind, it definitely moves you out of the 'helpless victim' corral.

JailBanksters's picture

That's a good thing

Means people are buying more crap they don't need with money they don't have and are borrowing money from people that just create money out of thin air.

It's called Capitalism, it's called Fascism when your own Tax Dollars are given to Banks so the Banks can loan your own money back to you because you don't have any.

Davidduke2000's picture

it's odd, few articles below I found this:

 

http://www.zerohedge.com/news/2017-11-30/savings-rate-ticks-higher-incom...

 

They cannot be both right.

the usual propaganda to confuse people, let's have a scientific explanation by our expert ghordius

mendigo's picture

Stop the ride I want to get off.

When it becomes unmanageable the banks will trigger next reset.

Taxpayer will take it in the shorts again.

Would not want to be holding real property at that point.

Will be global again as when it gets this bad you must do coordinated reset.

Debt is poinson gas filling the void.

Batman11's picture

Bank credit (lending) creates money.

There are three types of lending:

1) Into business and industry - gives a good return in GDP and doesn’t lead to inflation

2) To consumers – leads to consumer price inflation

3) Into real estate and financial speculation – leads to asset price inflation and gives a poor return in GDP and shows up in the graph of debt-to-GDP

Richard Werner explains in 15 mins:

https://www.youtube.com/watch?v=EC0G7pY4wRE&t=3s

US: 

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/20...

1929 and 2008 stick out like sore thumbs

UK:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/20...

Come on, it’s not hard.

Those Basel rules don't work.

 

Batman11's picture

These central bank ideologues are just getting annoying.

The FED attributed 2008 to a “black swan”.

I didn’t give up so easily.

Start reading up on the new experts and get ahead of the central bankers, mainstream economists and policymakers:

Steve Keen - Minsky moments and affects of debt on the economy

Richard Koo - After the Minsky Moment, studied 1929, Japan 1989 and 2008.

Richard Werner - Money and debt, bank credit and how it must be allocated for economic success, studying Japan around 1989

Michael Hudson - The history of economics, the difference between earned and unearned income

There is plenty free on YouTube - try before you buy.

Often the stuff on YouTube is easier to understand than the books.

Only Michael Hudson has a clear writing style.

Richard Koo's stuff on YouTube is so clear; I couldn't see the point in buying the book.

A good start to Richard Koo.

https://www.youtube.com/watch?v=8YTyJzmiHGk

Financial stability in 15 mins. from Richard Werner

https://www.youtube.com/watch?v=EC0G7pY4wRE&t=3s

Central bankers, those Basel rules don’t work. 

Batman11's picture

Let’s understand why austerity doesn’t work.

To understand the economics in detail you need to know things even the FED doesn’t know.

The FED didn’t know what this meant.

http://www.whichwayhome.com/skin/frontend/default/wwgcomcatalogarticles/images/articles/whichwayhomes/US-money-supply.jpg

M3 going exponential, a credit bubble is underway (debt = money)

This is what an overheating economy looks like in the money supply, 2008 was no “black swan”.

The money supply = public debt + private debt

This is unknown to the mainstream and today’s policymakers always think austerity is the answer.

The IMF predicted Greek GDP would have recovered by 2015 with austerity.
By 2015 it was down 27% and still falling.

Richard Koo had to explain the problem to the IMF.

https://www.youtube.com/watch?v=8YTyJzmiHGk

They had pushed Greece into debt deflation by cutting Government spending with austerity.

The money supply = public debt + private debt

The private sector were paying down their debts reducing the "private debt" component and then the Troika cut Government borrowing, the "public debt" component. Debt deflation was guaranteed, but they didn't know.

Richard Koo had watched as Western “experts” told Japan to cut Government spending and seen the fall in GDP as the economy went downhill. The only way to get things going again was to increase Government spending and he has had decades to work out what was going on.

It comes out of further knowledge that is missing from the mainstream.

Monetary theory has been regressing since 1856, when someone worked out how the system really worked.

Credit creation theory -> fractional reserve theory -> financial intermediation theory

“A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner

http://www.sciencedirect.com/science/article/pii/S1057521915001477

In a healthy economy the money supply rises steadily, as Milton Freidman tried to achieve with Monetarism.

The money supply equals all the public and private debt in the economy (money = debt), if you cleared all the debt there would be no money.

When the private sector are paying down debt, the private sector debt is going down and so is the money supply. The Government needs to borrow more to keep the money supply stable and stop the economy heading into debt deflation like Greece.

Austerity doesn’t work for known reasons; its finding the people that know that is difficult.

The arseholes at the ECB haven't got a clue.

 

 

silverer's picture

Don't worry. Wall St. will dream up something to allow the sheeple to go deeper into debt.

moonmac's picture

I borrowed $8,500 to finish school. I paid Sallie Mae over $30,000 before they stopped harassing me every day at work. I feel sorry for young Debt Slaves. Too irresponsible to have a sip of beer but old enough to handle a lifetime of depressing suicidal debt.

 

Last of the Middle Class's picture

Dead canary in a coal mine. Our massive government is sucking us dry and the Fed is  hell bent on printing money for distribution to certain "clients" while claiming they are working on our behalf. Pretty much coordinated fraud. 

bankonzhongguo's picture

I hang out in a California university town.

Over the last ten years the local gentry is getting poorer and poorer. "Families" are growing as people are flooding back to their parents home or any place with a stable roof.

Meanwhile, the university administrators are driving Teslas. No joke.

Students are queued-up getting emergency food assistance while going into debt for that polisci degree to nowhere.

 

3-fingered_chemist's picture

People buying cars to live in them? Seems to be a new trend.

Vlad the Inhaler's picture

Skip a payment on the family Obamacare premium

Run up the credit card so the kids can have Christmas this year

ug's picture

More Tax Breaks for the Rich that have so much they have to hide it, that's always the answer.

To Hell In A Handbasket's picture

Yet some Muppets on ZH, laugh at Venezuela? lol Different economic philosophises, but the USSA and Venezuela will both end up dead fucking broke. Hows that for irony, to all you fucks who laugh at socialism and worship the superiority of capitalism? Ivory fucking towers indeed.

Zorba's idea's picture

The Elite's "Extraction Operation" better come with lots of armed security when the day comes...the Day is coming. Funny, yesterday got an email from my Senator assuring me how wonderful and vital the (((Faux))) Tax Reform Bill is. Yes, my Senator is a Pimp!