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Household financial obligations have eased considerably

According to a recent release by the Fed, households' financial burdens continued to decline in the second quarter of this year. From their peak in Q3/07, total household financial obligations as a % of disposable income have declined by fully 10%. And as this chart shows, debt and financial burdens today are about where they have been for the past 25 years on average.

Pessimists will argue that bankruptcy and foreclosure have been the drivers of reduced financial burdens, but while that may be true for a portion of the population, I think it is also the case that many people have been working hard to pay down debt in the past several years, while at the same time disposable personal income has been rising. In that regard, I note that disposable income (the denominator of the ratios in the chart) has increased on average about 3% per year per capita, and 4% per year in nominal terms, over the past 5 years. Thus, it's likely that most folks have seen their disposable income rise by more than their debt and financial obligations in recent years.

It's hard to see how this chart could be construed in a negative way. At the very least, we can say that consumers today are no more at risk from too much debt than they have been for the past several decades.

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