The overarching trend steering economic growth, the balance sheet recession, or rather, what I would call the consumer credit crisis, continues. The most recent data from the NY Fed on total household debt showed another contraction this quarter. Clearly, the consumer is far too weak to run with the baton at this point so government deficits remain a necessity if we’re going to continue to see the meager growth we’ve seen. The one bit of good news is that the housing market does appear to be showing some signs of life so this trend in household debt accumulation might just be turning a corner.
More details from the NY Fed:
“Aggregate consumer debt fell by $53 billion in the second quarter, continuing the downward trend in outstanding household debt since its peak during the third quarter of 2008.
As of June 30, 2012, total consumer indebtedness was $11.38 trillion, 0.5% lower than its level at the end of the first quarter of 2012. This reduction in consumer debt was driven by the continued decrease in loans secured by real estate. Mortgage balances shown on consumer credit reports continued to fall, and now stand at $8.15 trillion, a 0.5% decrease from the level in 2012Q1. Home equity lines of credit (HELOC) balances dropped by $23 billion (3.7%). Household debt balances excluding mortgages and HELOCS increased by 0.4% in the second quarter to $2.6 trillion, boosted by increases of $14 billion in auto loans and $10 billion in student loans.”
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.