eternitus

Don't Worry About Consumer Debt

3% of income is a sizable percentage change (though not alarming) at any rate and I think you would get a very different result if you excluded the top 10% (or even better 20%) of income earning households. Income in these cohorts expanded the most on percentage terms over the timeframe shown and these households tend to hold less debt.

So, this chart excluding the top 10% or top 20% of earners is what I would like to see... probably somewhat more alarming.

Low Rates, Big Problems

Excellent points, Peter. The key question is where does this all end? Are we now going to back ourselves into a corner in which our economy can't function at 10-yr rates over 3%? We have already backed ourselves into a corner where the economy doesn't work at 5%+ (see what happened last August).

We have become addicted to not just low, but constantly declining interest rates... politically influenced, of course (no politician wants us to "take our medicine" on his watch... not good for job security... as such, the natural tendency is to lower rates in bad times, and not raise them quite as much as we should in good times, resulting in a steady downward march to zero and a steady upward march in asset prices and reelection prospects).

A childish tendency to stop markets from correcting on the downside (but a great eagerness to let them fly on the upside) has led to tremendous imbalances in our economy. These are starting to unwind now, and we should not interfere the process. Paul Volcker was the last guy to force us to take our medicine, and our reward was a 20-year period of prosperity. Thank goodness he is involved again.