Wednesday, May 16, 2018

Household Debt Service Payments as a Percent of Disposable Personal Income


Mike sent this out in a note the other day.

Household debt service bouncing along the bottom at 40 year low.

You can see how over the last 10 years households have been starved of credit as banks had to divert allocation of their regulatory capital against the additional $trillions of Reserve Assets the Fed created under the various QE policies.

This should begin to bottom as Fed has stated that they intend to reduce their QE policy by $400B this year and over $400B next year; allowing households to start accessing credit again.










6 comments:

Andrew Anderson said...

households have been starved of credit as banks had to divert allocation of their regulatory capital against the additional $trillions of Reserve Assets the Fed created under the various QE policies. Franko

What a clever way to, in effect, raise capital buffer requirements but without explicitly raising them!

At first, I thought it was stupid since bank reserves are risk-free and thus need no capital buffer protection. Now I think it's a brilliant boom prevention strategy by having Federal Deficit Spending preempt private credit creation by using up the capital buffer.

Of course, if we had 100% private banks with 100% voluntary depositors, we should not care how much of a capital buffer a bank had.

Andrew Anderson said...

Also, QE, being an asset-swap, should not use up the capital buffer unless the new asset is riskier than the old which isn't the case since reserves, being account balances at the central bank, are inherently risk-free.

So Federal Deficit Spending must be the cause since that creates NEW assets.

Footsoldier said...

Is this the reason those political parties who represent the commercial banks always push for reducing the government budget deficits ?

Commercial banks are losing money ?

Andrew Anderson said...

The hidden hypocrisy behind pushing for deficit reduction is that commercial banks could not safely create much credit themselves except for explicit and implicit government privileges.

I say remove all the privileges for and all the regulations on banks and if they can't survive as purely private businesses with purely voluntary depositors then who says they should survive anyway?

AXEC / E.K-H said...

Andrew Anderson, Footsoldier

Idiots, the Household Debt Service Payments are down because the interest rate is at the zero lower bound.

Egmont Kakarot-Handtke

Andrew Anderson said...

because the interest rate is at the zero lower bound. AXEC / E.K-H

Being inherently risk-free and with 0 maturity wait, private sector account balances at the Central Bank (aka "reserves" in the case of banks) should and could command* high NEGATIVE interest rates.

But wouldn't the banks, etc. just pass those negative rates on to poor depositors?

Yes, if they could, so let's free the human shields by giving every citizen a single, negative-interest-free** personal checking account at the Central Bank itself.

So the zero lower bound is a fiction. Indeed, 0% should be the UPPER bound on the inherently risk-free debt of a monetary sovereign to avoid welfare proportional to account balance.

*Ignoring, for the moment, the problem of physical fiat as a means to escape negative interest rates.

** Up to, say, a $250,000 limit.