Household debt relative to income has plunged since the financial crisis.
Debt servicing is easy courtesy of low interest rates.
But preferences have changed and households much prefer savings over debt.
Much ink has been spilled on the post-debt supercycle era in which we sit, including by yours truly. In today’s report, I want to focus on households; perhaps because the U.S. public sector hasn’t yet begun talking honestly about its debt problem. However, households were “forced” into their deleveraging cycle when the financial crisis hit following the bursting of the housing bubble.
As you can see in the chart below, the ratio of household debt to disposable income in the United States fell dramatically in the aftermath of the financial crisis. Many argue that the trajectory of debt still needs to come down, and I agree; although debt has declined to near the pre-bubble (dotted) trendline which is good.