How can the following two things be true at the same time?
- Household debt — in aggregate — is above levels last seen just before the economic calamity that hit America a decade ago.
- Everything is fine.
That’s a line you’ll hear from Wall Street economists, who are noticing the high debt but also telling their clients it won’t hurt.
The explanation is wealthy people.
US economic growth has become so skewed toward the wealthiest households that data showing healthy consumer balance sheets masks underlying troubles facing middle-class and poor Americans.
Deutsche Bank’s economists tried to wrestle with this issue in a recent note. They note that, overall, things look OK — households are earning enough to pay back debt that now totals $12.84 trillion — about two-thirds of gross domestic product.
But that big picture is skewed by the booming incomes of the wealthy, and “underneath the surface, there may be incipient cracks forming,” the bank’s economists say.
“Some measures of income growth have slowed; the saving rate has fallen to near record-low-levels; measures of consumer credit demand and credit growth have weakened, and balance sheets have become more fragile for the lower part of the income distribution.”
The rich will be fine
Since the crisis, the economy has recovered at a slow but steady pace, allowing the unemployment rate to fall sharply to 4.4% from a peak of 10% during the Great Recession, which lasted from December 2007 to the summer of 2009. The expansion has helped some Americans bolster their finances, but that progress is highly uneven.
