One of the most unloved American economic success stories has been how spectacular American households with mortgage debt look today. Let’s take a look at the New York Federal Reserve’s Household Debt and Credit Report for the third quarter, released today.
The most important factor is that debt structures are vanilla.
Post-2010, lending standards in America became normal again, and while I still believe they’re very liberal, they’re sane. I can’t emphasize enough how critical this aspect is to the American economy. People who make the most money, excluding the 1% and 0.01%, usually have the most consumer debt because they’re homeowners.
What happened post-2010 is that exotic loan debt structures that don’t provide long-term fixed debt products left the system. This was very critical to not only the housing market but also the health of the U.S. economy. As you can see below, when you lend to the capacity to own the debt, you should never see a rise in foreclosures or bankruptcies unless a job loss recession happens on a massive scale. We can see a slow and steady positive downtrend in stressed financial data, unlike in the 2005-2008 period where people filed for bankruptcies and foreclosures without a job loss recession.