Excluding the effects of defaults and charge-offs, available data show that non-mortgage debt fell for the first time since at least 2000. Also, net mortgage debt paydowns, which began in 2008, reached nearly $140 billion by year end 2009. These unique findings suggest that consumers have been actively reducing their debts, and not just by defaulting.
“Consumer debt is declining but only part of the reduction is attributable to defaults and charge-offs,” said Donghoon Lee, senior economist in the Research and Statistics Group at the New York Fed. “Americans are borrowing less and paying off more debt than in the recent past. This change, which we continue to study carefully, can be a result of both tightening credit standards and voluntary changes in saving behavior.”
How do you dig yourself out of debt? Stop borrowing money. Consumers are doing their part to right their balance sheets through paying down. This s not from foreclosures and bankruptcy but through making he monthly payments. This will be a natural drag on growth which will lengthen the time before the output gap is closed. Long-tern growth will stay below trend. The only good growth engine will be for a pick-up in exports.
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