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Chart of the day: household debt vs. savings

One reason many pundits feel this particular downturn will be quite nasty is the level of debt consumers have versus their savings. Since July 1982, when the stock market bottomed, Americans have been dis-saving and leveraging up like nobody’s business.

Since Alan Greenspan became Federal Reserve Chairman in 1987, the Federal Reserve has always supplied easy money when the economy hit the skids. As a result, Americans were never forced to retrench by reducing debt and rebuilding savings in anticipation of economic upswings. The result has been an ever increasing debt load and a low savings rate not seen since the Great Depression.

If you remember my separate charts of the day on savings and on household debt, you’ll know that Americans have never been so indebted and have never saved so little since record-keeping began after World War II.

However, looking at these two factors together on the same chart really fixes the mind on the magnitude of the problem.

Debt to GDP

Source
National Income and Product Accounts, U.S. Bureau of Economic Analysis

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

1 Comment

  1. Theinvestingspeculator says:

    Great post. I think that is why the markets have a lot farther to fall. The economy is 71% consumer related. If the consumer doesn’t have any more savings and can’t get more credit-revenues will fall-stocks will fall.