The Debt Goes on: A Post-Crisis 'Progress' Report

Abstract

Eight years out from the Great Crash of 2008-09, the recovering American and global economies continue to recover at best slowly. The “Great Delevering” that many prescribed or predicted as a prerequisite to real recovery has to some extent occurred, yet this levering-down has, ironically, been accompanied by resumed and even unprecedented levering-up in other household sectors – notably student loans, auto loans, and revolving credit card debt. In earlier work, we showed continuing post-crisis slump circa 2011 to bear all the hallmarks of a classic Fisher debt-deflation. We also demonstrated, correspondingly, that the decades prior to the crash had been characterized by a sequence of classic credit-fueled asset price bubbles of precisely the kind that culminate in debt-deflations – bubbles that policymakers had embraced with varying degrees of deliberateness as substitutes for stagnant real wages and salaries in a world awash in newly abundant cheap labor and attendant capital glut. Against that backdrop, we proposed a three-pillared plan (a) to wrest the American and world economies out of the ongoing slump, while (b) laying the groundwork required to avoid a repeat performance. As is now all but notorious, Congress has yet to act upon any such plan. We offer the present paper as a “progress” – or perhaps better, “regress” – report of sorts, tracking the crucial role still being played by private debt in fueling what little economic growth there has been or in staving off, temporarily, further stagnation in the U.S. economy. We begin with macrotrends observable in household consumer debt in aggregate, showing how it is once again substituting for missing wage- and salary-based purchasing power. We then turn to specific categories of household debt, commencing with student debt. From student debt we then turn to auto loan and revolving credit card debt. Finally we sum up, take stock and conclude with policy recommendations – recommendations that will look familiar against the backdrop of our earlier work.