
Americans Hold Over $4.1T in Consumer Debt - mcguire
http://60secondstatistics.com/americans-hold-over-4-1-trillion-in-consumer-debt/
======
NumberSix
The United States has a total resident population (as of January 23, 2017) of
324,420,000 people (about 324 million). Source:
[https://en.wikipedia.org/wiki/Demographics_of_the_United_Sta...](https://en.wikipedia.org/wiki/Demographics_of_the_United_States)

Thus, $4.1 trillion in consumer debt works out to $12,638 per person.

The Gross Domestic Product (GDP) in the United States was worth 18036.65
billion (about $18 trillion) US dollars in 2015. That is about $55,424 per
person.

Note that the "consumer debt" is divided into several categories.

Student loans represent a long term investment and may be reasonably paid off
over decades.

Auto loans are typically paid off in 3-5 years.

Ideally, credit card debt should be paid off immediately. It is difficult to
evaluate credit card debt because credit cards have increasingly become the
substitute for cash in the United States. How much of the debt is extremely
short term and essentially represents what used to be cash transactions?

What is "other" consumer debt -- payday loans? IOU's?

The point is that $4.1 trillion in consumer debt in a nation with over 300
million people and a GDP over $18 trillion per year is neither unreasonable
nor a crisis, particularly when that debt includes longer term items such as
auto loans and student loans.

~~~
cylinder
Looking at principal balances is all wrong. GDP means nothing in this instance
either.

What matters, and what lenders look at, is debt serviceability. Lenders don't
want principal paid back, ideally you just keep paying interest for life.

Let's say median household:

Income: $4000/mo

Rent: $1500/mo

Other necessities: $2000/mo

Let's say $500/mo "disposable." It's from this that the interest needs to be
paid to service the debt on that $12,600 (actually, that's per person; there
are 2.53 people in the median household, so $32k debt). What's the average
interest rate? Maybe 10%? That's $266/month just for interest.

Now, economy goes into recession, consumer loses income and will first stop
paying unsecured debt (credit cards, student loans), then auto loan until
repo, then finally mortgage. And keep in mind median American doesn't have a
lot of liquid savings to cushion. If there's anything, it's in 401k or home
equity - and now is not a good time to sell. But many are forced to, further
increasing supply when buyers are scared off, so prices keep declining.

Everything starts to be sold and assets get repriced. More seized cars at
auction. More foreclosed houses. Banks restrict credit. Everything spirals
down, quickly. Cashed up HNW investors willing to take the risk buy up
firesale assets with cash and hold them. Maybe prices recover eventually, but
now more assets are held by fewer people, and you've moved further into
inequality.

The US is very much a credit driven economy. That's why the credit crunch of
2007 had such a severe impact.

This _just_ happened a decade ago, and it seems people have already forgotten
what it's like.

~~~
Shivetya
A large amount of individual debt is wholly optional. What people ignore and
therefor schools do not teach to be wary is that marketing is very well
developed and convince otherwise rational people to make an irrational
decision which has them take on more debt.

from buying too much house or car to over buying an education that cannot be
used where the person is or in a field that cannot withstand the costs. all of
these are marketed products. all three have vary optional levels of how much
they cost.

then add in all the monthly bills and this is where many people miscalculate
and it snow balls. from cell to internet to even television. you can quickly
end up paying a significant amount of your income that has no tangible return.

~~~
FullMtlAlcoholc
> convince otherwise rational people to make an irrational decision

This is a myth that economics will not let go of. Almost all human decisions
are influenced by emotions. Here's two examples:

[A] Would you rather receive $49 or have a 50% of receiving $100? \- The
rational decision would be to choose the 50% chance since your expected value
would be $50. Most people go for the $49, humans are irrationally risk-averse
in terms of gains.

[B] 1)You have $1,000 and you must pick one of the following choices: Choice
A: You have a 50% chance of gaining $1,000, and a 50% chance of gaining $0.
Choice B: You have a 100% chance of gaining $500.

2)You have $2,000 and you must pick one of the following choices: Choice A:
You have a 50% chance of losing $1,000, and 50% of losing $0. Choice B: You
have a 100% chance of losing $500.

Time after time, when presented with this problem, people chose B for question
1 and A for question 2. A rational person would choose either A or B for both
questions. The expected value is the same for both questions, but it shows
that people are risk averse in gains and risk seeking in mitigating losses.

Couple this with the number of people who actually understand the concept of
compounded interest rates and yikes.

Just nitpicking, but people are not otherwise rational. Study after study has
shown that emotions are involved in nearly every,if not all, decisions that we
make.

~~~
ericd
Reducing variance is worth real money to people, since the marginal utility of
the first dollar is much higher than the 1000th.

~~~
FullMtlAlcoholc
I completely agree. A bird in hand is worth 2 in the bush and all that.
However, even today economic theories do not take this into account and assume
rationality === choosing the highest expected payoff. I.E. we're all
statistical savants

~~~
ericd
Yep, your main point that economics' rational man is a complete fiction is
absolutely correct.

~~~
HarryHirsch
He's a convenient fiction though. Since to _homo oeconomicus_ a certain
expense of USD 500 and the 50 % chance of a USD 1000 expense are the same,
expect him to be rolled out to sell you high-deductible health insurance and
health savings accounts. _H. oeconomicus_ is the model human, consequently he
isn't cashflow constrained, and the fact that HSAs double as tax shelters for
the wealthy doesn't concern the Ideal Man either.

University economics is a religion, not a science, it offers up myths instead
of testable predictions on observable reality. High finance is a different
deal, but they surely don't build their models on university textbooks.

~~~
slededit
> University economics is a religion, not a science

That's a bit harsh. Is every field that employs simplified approximations of
complex systems a religion as well? With that definition even physics is out
and that's one of the more concrete sciences.

~~~
FullMtlAlcoholc
At times it does appear to be a religion because of the cult of personality
that proliferates (remember the Greenspan years?) and, most significantly, the
blind faith and slavish devotion to free markets being a solution to
everything.

What I find most off-putting are those who advocate for wholesale changes in
our society on little more than hypothesis and faith instead of running
experiments starting at the smallest reasonable scale and then successively
working your way up from that.

It should at least pretend to try to applying basic scientific methodologies
to its practice.Psychology has evolved to being a rigorous, evidence based
social science. That psychology is not one of the foundations of studying
economics is also problematic too.

------
slg
The most dangerous problem with the housing crisis in 2008 was not the amount
of debt. It was the feedback loop that was created by defaulting on that debt.
Foreclosed homes naturally have a lower value than non-foreclosed homes. Homes
are priced by looking at recent comparable home sales. If your neighbors to
both your right and left have had their houses foreclosed on, the value of
your home will go down. If the value of your home goes down too much, it
becomes nearly impossible to refinance your mortgage (which was important due
to all the crazy adjustable rate mortgages that were handed out in the
preceding years). This leads to more and more foreclosures and worse and worse
home values.

That feedback loop does not exist with unsecured debt. If your neighbors to
both your right and left can't pay their student loan, the value of your
education will not go down.

~~~
rlpb
> Homes are priced by looking at recent comparable home sales. If your
> neighbors to both your right and left have had their house foreclosed on,
> the value of your home will go down.

Surely the lower valuation on your home is incorrectly low, though? Or is
there some actual reason why buyers would want it less?

~~~
coredog64
The banks use "comps" to figure out the maximum loan value. Assuming the
housing nearby as similar, their actual sale price provides the price signals
markets crave.

~~~
chrisabrams
Comps have nothing to do with loan value. Your income, credit, and assets and
debt decide what your max loan value is.

~~~
aaronblohowiak
your financing can be denied if the house doesn't appraise, depending on your
deal with your lender

~~~
brandmeyer
And while the appraisal is supposed to be independent, the appraiser knows the
contracted sale price of the house at the time of the appraisal.

------
purple-again
Americans Hold Over $4.1 Trillion in Consumer Debt and Roughly $90.0 Trillion
in Asset Wealth doesn't quite have the same ring to it.

~~~
dpweb
The debt is real, the wealth not necessarily. But a more telling measure would
be debt per capita or debt vs liquid assets. The financial crisis showed us
that 20 trillion can be erased relatively quickly.
[http://www.huffingtonpost.com/2013/02/14/financial-crisis-
co...](http://www.huffingtonpost.com/2013/02/14/financial-crisis-cost-
gao_n_2687553.html)

~~~
obstinate
The debt is as "real" as the assets. All it would take to erase a good chunk
of it is for people to stop paying or for significant inflation to occur,
among many other possibilities.

Edit: I'm not trying to suggest some kind of Fight Club-esque reorganization
of society's financing structures. I'm just talking about the way that debt
tends to get fractionally charged off when it goes to collections.

------
omilu
Combine low wages, increasing loan delinquency, and the probable start of
trade wars with mexico and china and I can't see how this doesn't turn out to
be like 2008 on steroids.

~~~
IshKebab
Does America really have low wages? Granted, the lack of a minimum wage is
crazy, but the median household income is $56k. Compare that to £23k in the
UK.

~~~
aaronblohowiak
You are comparing pre-tax income (USA) and post-tax (UK)! You also mixed your
units. TO use net-adjusted disposable income, USA has 41k USD and UK 28k USD.
Also, you'd need to adjust for the benefits you get from your
government/employer (Health insurance) for a fair comparison. While American
workers earn more than UK workers, that does not necessarily imply that the
total cost of employment for UK _employers_ is lower than total cost of
employment for USA _employers_. I don't have that data handy.

~~~
bdcravens
> you'd need to adjust for the benefits you get from your government/employer
> (Health insurance) for a fair comparison

Indeed. My out of pocket for medical care this year is $19k (and that's with
one of the "gold" plans)

~~~
angry-hacker
But how much is it compared to your salary? I pay 33% of my income just for
Healthcare. Or well, government just takes it :)

~~~
bdcravens
I won't give exact numbers, but somewhere between 10% and 33%. :-)

But for a typical developer, that would be in the neighborhood of 20%.

------
DenisM
One man's debt is another man's financial asset.

~~~
IshKebab
Yes but those assets are owned by the rich. I'd wager increased debt
correlates strongly with increased inequality.

~~~
ac29
Those assets, if you're referring to consumer debt, are owned by anyone with a
retirement account (or pension) with financial sector stocks in it.
Considering that just about any diversified portfolio probably has a broad
based US equity portion, that is probably the majority of employed people.

~~~
erubin
I think you may be overestimating the number of employed people who are
invested in the markets to any real degree.

------
bamboozled
Honest question here, does this actually matter anymore? Do economists see it
as a positive, negative or neutral thing?

When I hear about debt that big I wonder if $4.1T even a real thing. I mean is
it a tangible number that actually represents something of real substance?

~~~
cnnsucks
Yes, it's real. Lenders have computers that sum lots of accounts; they're
expected to do that and disclose how much they've lent.

$4.1E12 isn't really that difficult to relate to. Just amortize it across the
US population of 325 million. That's $12,612 per citizen. It's also about one
year of Federal spending.

It's a negative thing. Both individual debt load the and the rate of
delinquency has been increasing, with student debt being the worst of these;
if you can fog a glass you can make the Federal government send money to some
school against your future earnings. There is probably no form of debt easier
to assume in the US and upon this river of money floats a horde of careers,
bonuses, pensions, endowments and gold plated benefits for The Great and The
Good of academe, which makes questioning the value of it all a political third
rail.

What do economists think? They're watching the bubble grow and devising ever
more contrived ways to pretend it's not a bubble.

~~~
bamboozled
Thank you for the response!

I've actually been thinking about the implications of student debt for a while
and it seems like a really terrible thing for a lot of reasons. I think it
sucks people are forced into jobs they probably wouldn't otherwise do, just to
pay off some debt.

The only thing I'll say about your response is that, I frequently hear about
"the bubble getting ready to burst", but it never seems to happen. Similar to
radical increases in housing prices, they seem to just keep rising, contrary
to economists predictions about a crash. It's a totally anecdotal observation,
but it's the reason I asked the question in the first place.

~~~
cnnsucks
>> forced

There is no force involved; please maintain perspective. There are no debtors
prisons filled with 20-something Berkeley graduates. Every penny of every
student loan was voluntarily assumed by the debtors. The terms for much of
this debt allow payments to be deferred based on income. The average amount of
student debt being carried is typically less than the cost of a new car. We
deal here with "first world problems."

>> but it never seems to happen

2008? TARP? "Great Recession"?

It clearly registers on every measure of economic activity I've seen. Rather
hard to miss, really. You can have a look and the 07-08 collapse of property
values over here if you missed it:

[https://en.wikipedia.org/wiki/United_States_housing_bubble#/...](https://en.wikipedia.org/wiki/United_States_housing_bubble#/media/File:Median_and_Average_Sales_Prices_of_New_Homes_Sold_in_the_US_1963-2010_Monthly.png)

------
mortehu
For lots more data and charts, see New York Fed's quarterly report on
household debt and credit:

[https://www.newyorkfed.org/medialibrary/interactives/househo...](https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2016Q4.pdf)

Page 13 shows newly delinquent balances by loan type, and the trend doesn't
seem too worrying. Page 11's "total balance by delinquency status" also seems
to be heading in a good direction.

~~~
mcguire
What happened to bankruptcies in 2006? They dropped significantly.

------
bbcbasic
Debt is money. Money is debt. You borrow money and it's fresh new money,
expanding the money supply. If everyone pays back their debts, then (nearly)
all of the money is gone.

You don't have $1000 in your checking account. You have an IOU from the bank
for $1000. You can then 'spend' the money by transferring the IOU to someone
else. But it is never guaranteed transferable for something real. It relies on
everyone else believing the $1000 has value, which they do, so you are OK.

~~~
yuhong
My favorite is government budget deficits. Take for example Medicare and
drugs. Where does the money Medicare use to buy drugs comes from.

------
makecheck
The trend is probably more important than the total. A single debt amount can
be “OK” for one person but practically sink another person.

The _rate_ of bank-related expenditures should be measured instead. Add up all
the ridiculous overdraft fees, the interest payments, changes in rates due to
an ARM, etc. and one person’s financial picture could look quite a bit
different than another for “the same debt” _amount_.

------
to3m
Secured on wasting assets, the promise of future earnings, or nothing at all.
What could possibly go wrong?

(On the bright side this is far from the majority of debt.)

~~~
idiot_stick
> _What could possibly go wrong?_

Americans are the wealthiest people in the history of mankind. Fortunes ebb
and flow, but there isn't much to worry about.

~~~
bdcravens
Depends on your definition of wealth. Defined as "amount of time you could
survive with no income", most Americans (including many in the HN crowd)
aren't very wealthy at all.

~~~
TheCoelacanth
Only if they insist on keeping their current (very high compared to most
people in history) standard of living. A median American could survive at the
standard of living of a medieval peasant indefinitely on their current assets.

~~~
handojin
Yes, but it would require one to possess a marked fondness for worms.

------
dangerboysteve
The number is 12+T when you factor in mortgage debt which should be factored
in.

[http://www.zerohedge.com/news/2017-02-16/us-household-
debt-r...](http://www.zerohedge.com/news/2017-02-16/us-household-debt-
rose-126-trillion-2016-biggest-jump-decade)

------
steveax
See also: [http://www.calculatedriskblog.com/2017/02/ny-fed-
household-d...](http://www.calculatedriskblog.com/2017/02/ny-fed-household-
debt-increases.html)

(For some more analysis)

------
helthanatos
Here's a few things that could ease student loan debt: make the interest rate
less, use SS paid into while in college towards college, simplify all the
federal student loans, etc. Seriously... I'm going to die before I get to use
any SS...

------
nashashmi
IMO, the biggest problem with so much debt is the amount of interest embedded
in the agreement of it all. Let's say that the average interest rate is 4% and
that none of the debt is double counted, e.g. one debt leading back to another
debt at a different interest rate. The total interest revenue on the debt is
$161 billion dollars. Where does that money come from?! It needs to pop up out
of thin air, like someone needs to print it.

If there is a question of why, I will explain. It is the same explanation I
give to a banking specialist for my refusal to accept a savings account. Take
a village of 100 people; the entire village has no money whatsoever, so they
cannot trade or buy food or sell goods and services. A rich man lives on the
top of a mountain and decides to lend a $100 to the entire village, which is
$1/person, at an interest rate of 5%, and the entire debt is to be paid back
in exactly 1 year.

For the duration of that year, villagers are beginning to buy and sell, the
economy is created and is moving healthily, villagers are working, products
and services are being created, sold, and consumed. At the end of the year,
$105 need to be paid back, but the entire amount of money in the entire
village adds up to just a $100. Where does that $5 come from?

Some villagers will have accumulated more than $1 and they will be able to pay
back their debts and have some left over. But then also some villagers will
have nothing. What do they lose? How do they fulfill their debts?

The entire system relies on the introduction of additional money from
somewhere. If so, then that entity loses money. This system is deeply toxic
and works contrary to the one who borrows. And once all is added up, the net
result is all money is removed from the system. Losers lose big. Winners hit
net zero eventually.

~~~
tradersam
You somewhat described the process of money-creation, which is what keeps the
economy going, but you rated it as toxic.

~~~
nashashmi
It is toxic if new money is not printed. And if it is printed, who gets to
spend it?

