Monthly Archive for October, 2011


For the first time since 2004q4, US household debt is less than 100% of disposable income

In today’s story of household “deleveraging” in America (okay, so this is very, very late since the data were released in August. Still … ):

2011q2 was the first time since 2004q4 that U.S. Household debt was less than 100% of Disposable Personal Income (click on the image for a less squished version):

2005q1 and 2011q1 were both at 100% exactly, or close enough.

In the period 1999q2 to 2006q3, distressed household debt averaged 4.35% and was never higher than 5.06%. Distressed household debt was at 9.86% in 2011q2, having peaked at 11.98% in 2009q4.  As the Fed’s credit conditions report highlights, that was the 6th straight quarter of improvement.  However, the quarter-to-quarter falls have been quite low:  0.04 percentage points (2009q4 to 2010q1), 0.58 p.p., 0.26 p.p., 0.31 p.p., 0.31 p.p. and 0.62 p.p. (2011q1 to 2011q2).  If we assume a continuing fall of 0.4 percentage points per quarter, it’ll take another 14 quarters – that’s 2014q4 – to return to the pre-crisis average.

Of course, a resumption of growth in consumption is not contingent on that happening (maybe we’ll see a jump in incomes for some reason – I’m looking at you, policy makers), but it’s still pretty depressing.

Crucially, too, everything here only looks at aggregate, or average, numbers and if you think the balance-sheet recession story carries any weight at all, you should be very, very interested in the distributional effects.


A simple proposal to improve fiscal policy

Payroll taxes (a.k.a. Employer’s National Insurance Contribution in the UK) should vary inversely with how long the employee had been unemployed at the time of taking the job.

Or, perhaps, there should be a straight discount on payroll taxes for an employee that was unemployed when hired, but the duration for which the discount applies should be proportional to the length of time they had been unemployed.

Either way, this should be a permanent part of the tax system – thereby providing another automatic stabiliser to fiscal policy, both in boom times and recessions.

This idea is not unique to me.

This idea is conditional on Central Bank policy not reducing the fiscal multiplier to zero.