Beyond Defaults, Americans Opted to Shed Massive Debt Since Crisis

Beyond Defaults, Americans Opted to Shed Massive Debt Since CrisisAmericans have shed their indebtedness by $1.4 trillion since the height of the financial crisis in the fall of 2008 through the third quarter of 2012, according to a new report from the Federal Reserve Bank of New York.
The new data analysis reveals that U.S. households actively reduced their debt obligations during this period and reduced new borrowing.
“These household choices, along with banks’ stricter lending standards, helped drive this deleveraging process,” the N.Y. Fed’s report said.
During that four-year period, the deleveraging resulted in a decrease from $12.7 trillion in total debt at its peak in the third-quarter 2008 to $11.3 trillion at the end of third-quarter 2012.
Total household debt has decreased roughly 11 percent since its peak, reads “The Financial Crisis at the Kitchen Table: Trends in Household Debt and Credit,” by Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw.
Mortgage-related debt now accounts for 76 percent of total debt, with the remainder composed of credit cards, auto loans, student loans, and other consumer debt.
Much of this leveraging, of course, was not voluntary as the unprecedented foreclosure crisis has shown. However, bankruptcies and foreclosures have declined substantially between the second-quarter 2010 and the third-quarter 2012.
“Holding aside defaults, from 2007 through 2011, consumers reduced their debt at a pace not seen over the last ten years,” the N.Y. Fed’s report states. “A remaining issue is whether this reduced reliance on debt is a result of borrowers being forced to pay down debt as credit standards tightened, or a more voluntary change in saving behavior.”
Much of the deleveraging was voluntary, the study concludes. It found that the following three “mechanisms” were at work:

  1. Declining consumer use of, and demand for, credit;
  2. Declining lender supply of credit; and
  3. An increasing amount of nonperforming debt written off by lenders as a result of the sudden increase in default rates.

In light of recent mostly modest improvements in credit availability, the question posed by the study is: How much further consumers’ voluntary actions will lower aggregate debt before they begin to spend again?
This question is important in the context of the U.S. economic outlook.
“While household debt pay-down has helped improve household balance sheets, it has also likely contributed to slow consumption growth since the beginning of the recession,” the study said.
The future “trajectory for consumer indebtedness” has important implications for consumption and economic growth going forward, the study found.
Beyond Defaults, Americans Opted to Shed Massive Debt Since Crisis

One thought on “Beyond Defaults, Americans Opted to Shed Massive Debt Since Crisis

  • April 23, 2013 at 10:25 am
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    Dan
    April 23, 2013 at 10:11 am
    Hello
    Wells Fargo foreclosed on us, and did not even own the mortgage.
    I hired 3 different firms to try and work something out in the form of a
    Modification, Wells Fargo would not even discuss it.
    Then I ended up hiring 3 differ law firms to help file the Chapter 13
    All of these Firms were so busy raking in Huge profits from all the BK cases, that we could not even get one of them to do due diligence and file the correct papers.
    I spent over 20K on worthless Attorneys, we also filed every complaint under the sun and all of these Government agencies did NOTHING AT ALL, we never even received a reply from any of them.
    After all of this, I choose to become my Own Attorney Pro Se and straighten out the Chapter 13.
    This all took so much time, that even after being laid off in the worst depression on recent record, and being lucky enough to find something temporary 200 miles from home,.
    I also lost the temporary position after a year, as I was being summoned to court and harassed by Wells Fargo every other month.
    I finally negotiated a shotgun at my head modification with Wells Fargo, who refused to ever provide a single shred of any evidence that inflated my Mortgage by over 10,000.00.
    My new payments were higher than before, and this all cost me over 40,000.00 and surely took years off my life due to the stress and hassles.
    Now The FEDs and Bank Crooks want off the hook for a 1,000.00 per person with no disclosure at all.
    America, none of these crooks even went to jail; we were all ripped off BIG TIME.
    I Demand BETTER, and so should the rest of the Americans in this once great country.
    People need to be Jailed, Feds needs shut down.
    This is absolute BS, Call your Senators.

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