The question that occurred to me in reading Bill McBride’s most recent post in which he noted a report from the NY Fed that indicated that consumer indebtedness had declined .7% from the second quarter of 2012 to the third quarter of 2012 was is that good news or bad news? You be the judge.
I did a little back-of-the-envelope calculation and found that, if consumer indebtedness declines at that rate until it reaches its level in the first quarter of 2003, that would take 57 quarters, just shy of 15 years. A quick check of the history suggests that we have never experienced a decline of that length. Indeed, the history of the post-World War II United States, the period of our greatest prosperity, is one of ever-greater expansion of consumer indebtedness.
Now, admittedly, my model is pretty simple. I’m ignoring things like inflation and the effects of future recessions.
However, if what we’re experiencing is a balance sheet recession, household indebtedness declines at the rate that it did in the report, and the magic target number is the level of indebtedness we had in 2003, it looks to me as though we have a problem. The problem is that much bigger if the magic number is the level of, say, 1993. Or 1983.