Why do Americans owe less money this year?
Floyd Norris zeros in one one of the factors: Banks writing down uncollectable debts:
“Figures released this week by the Federal Reserve showed that Americans owed $10.8 trillion on home mortgages at the end of the third quarter, down 2.2 percent from a year earlier and the lowest level since mid-2007. Similarly, the Fed said that outstanding credit card bills in October totaled $888 billion, down 8.5 percent from a year earlier. That number was the lowest since March 2007.
Those trends do not, however, necessarily indicate that Americans have paid down their debts and are starting to lead the more frugal lives that some financial planners have been recommending for years. There has undoubtedly been some of that, but the declines also indicate that banks have been forced to write off a lot of bad debts and have grown more stingy in granting credit . . .”
The chart below shows that credit card write-offs have soared to 10.2% annually, from one quarter of that a few years ago:
Chart courtesy of NYT
Americans Owe Less. That’s Not All Good.
NYT: December 11, 2009