Since 2008: US Debt (Part 3 of 3)Submitted by Headwater Investment Consulting on October 15th, 2018
By Kevin Chambers
Part three of our series, exploring our world since the 2008 crisis, we look at the landscape of debt in the US. After 2008, the amount of debt held by consumers in the US fell dramatically. Surprisingly, it has also stayed low. Total debt has started to rise again, mostly as people start to take on mortgages again after the crisis.
The two types of non-mortgage debt we have seen take a big increase are student loans and auto loans, which are now both over a trillion dollars in outstanding value. Auto loans don’t seem to be a huge problem for Americans as only around 4% are in trouble of going into default. Student loans are still concerning, however. About 11% of student loans are delinquent, making it the only delinquency rate that has risen since the crisis. In general, banks and financial institutions have been required to hold borrowers to a higher standard. There are more safeguards to not allow people to be preyed on by corporations and borrow beyond their means.
non mortgage debt and delinquent loans
Even with record low interest rates, we haven’t seen a huge increase in the amount of debt taken on by Americans. It could be a response from the credit crisis. Millennials have shown they are the generation most afraid of debt. They are also not choosing to buy homes on a bigger scale than in previous eras. We are also seeing the government take on more of the debt. They are holding the majority of mortgages and have increased their own balance sheet. Although the benefits and costs of our government holding more debt can be debated, corporations are holding less debt after 2008. This is probably a good thing, in comparison. Having less debt for consumers and businesses means it might be harder for a contagious debt crisis to happen again. At the very least, the government has more tools to combat their indebtedness process, not just default. US bonds are still considered some of the safest investments in the world, and regardless of the record levels of debt, investors still want to buy US treasuries.
In summary, the debt landscape in the US is vastly better than it was in 2008. It seems that the regulations put in place post-2008 have been effective. They have curbed defaults and limited the total amount of debt in our economy. With the pointed exception of student loans, that is. Student loans, however, are a tiny fraction of the economy, compared to mortgages. Although there is potential that student loans could cause a lot of pain, and they have, for many people, widespread defaults in student loans most likely would not trigger an economy-wide crisis.