Peak Debt? Not Really…


Yes, household borrowing has topped the old record reached right before the financial crisis. But that doesn’t mean a meltdown is coming.


For the first time since the financial crisis, household debt levels in the U.S. have surged past old records. As the Federal Reserve Bank of New York reported,  total household debt stood at $12.73 trillion as of March 31, a $149 billion increase, or 1.2 percent, from the fourth quarter of 2016. That put overall household debt $50 billion higher than its previous peak in the third quarter of 2008.

A quick review of related headlines suggests calamity is nigh: “Household debt is dangerously close to 2008 levels,” according to CNN. The New York Times ominously reported that borrowing had reached levels not seen since “2008, just as the global financial system began to collapse.” The record debt risks “exposing some categories of borrowers to financial strain as they try to keep up with their obligations,” the Financial Times intoned.

If you weren’t inclined to take a deep breath, the only conclusion to reach is that another financial crisis is imminent, that markets will get eviscerated and that we shall soon all be wandering a post-apocalyptic war zone, trading our first-born children for bottled water.

Or, as the Los Angeles Times correctly observed, maybe not.1

Anytime a splashy headline contains a frightening veiled warning, we should step back to consider the fuller details. In this case, much of the coverage revealed the usual denominator blindness — looking at one aspect of a complex issue without considering the bigger picture.

Let’s add some context:


1. The Liberty Street blog of the New York Fed got this spot on, as did the Center for Economic and Policy Research.

2. The FRED Blog does a nice job explaining the importance of deflating data, putting this into context for both student debt and federal debt.

3. Alternatively, you could use this (nonseasonally adjusted) chart from the Federal Reserve Bank of St. Louis, measuring the ratio peak to trough, showing 99.2 percent in the first quarter of 2008, versus 79.9 percent in the third quarter of 2015.

4. Here’s the complete quote from the New York Fed:


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