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The US Consumer is not Over-leveraged

 Despite all the hype of the over leveraged consumer, you shouldn't believe it.  This data comes from the flow of funds that was released today:

 
 
(even though the data is for households and nonprofits, nonprofits represent a deminimis portion of the total assets)
 
The important data from this sheet are that assets are $67T and the liabilities are $14T.  This leaves the consumer with a net worth of $53T, which was actually an increase Q/Q.
 
If consumers in general were a company, we may look at their total leverage on a debt to cap basis.  For the consumer, this ratio is 20% (14/67) which is completely reasonable!  This leverage and a positive net worth by definition mean that the consumer is not in fact drowning in a pile of debt.
 
I think that most of the thesis that the consumer is over-leveraged comes from looking at debt as a percentage of GDP (which is way over 1x).  This is probably not a fair analysis because it disregards the wealth that has been stored by Americans from a century of being the most prosperous country in the world.
 
Don't believe the savings rate either.  Given the fact that Americans have a positive and growing net worth, it simply doesn't make sense to say they haven't been saving.  Americans have been storing away for a rainy day, and this allows us to spend as much as we have.


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