Thursday, December 15, 2005

Spurred by the Housing Bubble Americans Pile on Debt

An analysis of the Fed’s Flow of Funds (December 8, 2005) report by the Financial Markets Center finds that Americans continue to go deeper into debt:

1) "New debt outstripped the growth of income and the rise of home values in the second quarter of the year."

2) "During the third quarter, Americans debt outstanding rose 12.8% as Americans added $1.24 trillion in new net borrowing. This amount equaled an unprecedented 13.3% of disposable income. At the same time, the ratio of outstanding debt ($10.96 trillion) to total household assets ($62.49) remained at a peak of 17.5%.".
(It appears that a 10.4 % rise in household worth, the bulk of which was a 13.2% rise in home values, during the third quarter spurred the spending.)

3) "As a result of this mismatch in debt accumulation and income growth, household debt-service ratios–payments on outstanding mortgage and consumer debt as a percentage of disposable income–also remained at a historic peak...13.55%."

The report noted that the rise in debt continued to be primarily through the growth of home mortgages.

This is further proof that Fed Head Alan Greenspan's easy money policy has created a housing bubble and put average Americans at risk.

To read the report:{DFBB2772-F5C5-4DFE-B310-D82A61944339}/HFC_dec05.pdf

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