So who the heck are the Really Great Ones?
Americans have been on a borrowing binge. To buy their favorite cars and trucks, they’ve loaded up on $1.14 trillion in auto loans. Young and not so young Americans are mortgaging their future with student loans that now amount to $1.28 trillion. Credit card and other debts are at $1.12 trillion. And mortgage debt stands at $8.82 trillion.
So, total household debt was $12.35 trillion, according to the New York Fed’s Household Debt and Credit Report for the third quarter 2016. That’s a massive amount of debt. Many consumers are struggling with it. Student loans are seeing enormous default rates, and repayment rates are far worse than previously disclosed. And “debt slaves” has become a term in the financial vernacular.
But it isn’t nearly enough debt…
Neither for the New York Fed whose President William Dudley, in a speech a few days ago, practically exhorted households to borrow more against the equity in their homes so that they blow this cash and drive up retail sales: “Whatever the timing, a return to a reasonable pattern of home equity extraction would be a positive development for retailers, and would provide a boost to aggregate growth,” he mused, with nostalgic thoughts of 2008.
Nor for the global rankings of debt slaves, where US households squeaked into the ignominious 10th place, barely ahead of Portugal! I mean, come on! Portugal!!
There are many ways to measure household indebtedness and debt burdens. Comparing total household debt to the overall size of the economy as measured by GDP is one of the measures. And per this household-debt-to-GDP measure, the Americans are in 10th place with 78.8% and look practically prudent compared to the peak just before the Financial Crisis (via Trading Economics):
We have long written with great amazement about Canadian households that, tougher than nails, have funded a fantastic housing bubble with even more fantastic levels of debt, though this bubble is now coming apart at the seams in the once hottest market, Vancouver.
But their household debt-to-GDP ratio of 99.8%, as hair-raising as it may seem, only landed Canadian households in 5th place (via Trading Economics):
And we’ve have long written about the immensely over-indebted households of Australia, who’ve funded their extraordinary house price bubble with dizzying levels of debt. The bubble has started to unravel in Western Australia and is threatening to spread to other markets. But even with a mind-blowingly glorious household-debt-to-GDP ratio of 123%, Australians are only in 3rd place (via Trading Economics):
So who the heck are the Really Great Ones?
Danish households clocked in at 123.6% of household debt to GDP. These figures from the Bank for International Settlement, gathered up by Trading Economics, cover the period through Q2 2016. So Australians, who were essentially neck-to-neck at the time with the Danes, might have surpassed them by now. But that stunning level of 123.6% of GDP is good for 2nd place, though it’s down from 140% just before the Financial Crisis (via Trading Economics):
And here is Number 1, the most glorious debt slaves of all, the country whose central bank is trying to manipulate down its currency by imposing steeply negative interest rates: Switzerland. And what has thrived in this zero- and negative-interest-rate nirvana is debt, with the household-debt-to-GDP ratio soaring over the years to 127.7% (via Trading Economics):
That leaves the Also-Ran Debt Slaves:
In 4th place, the Netherlands with a household-debt-to-GDP ratio of 111.3%. Now, I know that the fearless folks of the Netherlands believe that they’re on top of the heap of debt, that they in fact are the Number 1 debt slaves, and by some measures they may be, but not by this measure (via Trading Economics):
In 6th place, barely behind Canada, is a country whose people just recently discovered the pleasures of loading up on debt: Norway. These folks nearly doubled their debt-to-GDP ratio from 2002, when it was barely over 50%, to Q2 2016, when it was 98.9%. Note how the debt levels have skyrocketed over the past few years. Where did the Northern prudence go? No one knows, but good riddance (via Trading Economics):
In 7th place, with 90% household debt to GDP: South Korea. Nothing is going to stop them. They have been relentless in piling on debt, except for minor dips during the Asian Financial Crisis and the Global Financial Crisis, and even those crises slowed these brave folks down for only a little while (via Trading Economics):
In 8th place with a household-debt-to-GDP ratio of 87.6%, the Brits. Like the Americans and a few others, they had ambitions of prudence after the Financial Crisis but have recently tossed these nettlesome ambitions into the wind and are now once again finally increasing their debt levels (via Trading Economics):
In 9th place, a country whose consumers have discovered the power of debt in the late 1990s and haven’t looked back since: Sweden, with a household-debt-to-GDP ratio of 84.9%, up from about 43% in 1996 (via Trading Economics):
This – 10th place – is where American debt slaves fit in. So we barely measure up. Note that household debt in some of the European debt-crisis countries, such as Italy, Spain, and Greece, is by comparison with their Northern brethren, fairly low, though their public debts and banks got them into trouble.
Here is the list of the 30 countries with the most indebted households in relationship to the size of the economy. Find China:
And here’s some inevitable food for a terrifying thought: The countries with highly indebted households, so the top of the list, are mostly countries were central-bank policy rates are very low or even negative, and where mortgage rates are super low. What happens to those housing markets, the households, the banks, and the overall economies when interest rates rise even a little and that whole equation of perennially ballooning debt falls apart? We already know what happens.
The other options is a big bout of inflation to help wipe out the purchasing power and burden of that debt. But that debt is a huge asset class with very low returns as it is, and if a big bout of inflation sets in, the holders of these assets – banks, pension funds, insurance companies, and other institutional investors – are going to take a licking, as are the hapless people (which is nearly everyone) that counted on the purchasing power of those cash flows. Those are the two options out of this debt nirvana.
So what would Yellen do? Read… Treasuries Got a Break. Now Beatings Resume until the Mood Improves