- Overleveraged. In Q3 of 2007, US households collectively had borrowed 127% of their annual incomes. In the 1990s, the average was 84%. We are down to 112% (as of Q1), in part because banks have written off some debt as uncollectible.
- More deleveraging to come. To get back to 84%, households either need to pay down another $3.3 trillion of debt or see their incomes rise $3.9 trillion. Credit Suisse estimates that this is equivalent to about nine years’ worth of income growth in normal times.
- Reduced consumer credit. Banks have reduced credit card lines from $3.04 trillion to $2.69 trillion. They’ve reduced home equity credit lines from $1.33 trillion to $1.15 trillion.