Are Debts Really Falling in US

Debt Credit Report that U.S. households are spending less may give the impression that debts are falling. If it comes as a glimmer of hope, then hold on! There is lot to it than meets the eye. Many households aren’t exactly trimming their expenditure to save more and clear-off debts. They’re simply defaulting on them. By the end of June, the total household debt fell by around $80 billion. Rosy it may seem, but the fact remains, according to Capital Economics Group that nearly half of that decline stemmed from bank charge-offs of residential mortgages, credit cards and other consumer loans.

A London-based economic research consultancy found that falling of household debt isn’t really a new development. Household debt has fallen every quarter since the beginning of 2008, leaving it about $470 billion below the peak. Such a fall is equivalent to bringing down of the debt at every household by $4,200. So what are Americans doing with their savings? Americans are using their new savings to buy up U.S. Treasuries. During the past year, households bought more than 40 per cent of the new Treasury debt issued. This is equal to about $600 billion and has bypassed the $430 billion absorbed by foreign investors.

This is where the disturbing trend for the economy lies. Until households use the savings to shed off debt credit report, economic growth will remain stalled and job prospects would remain bleak. This is because many companies are waiting for GDP to pick up before recruiting more workers. Those who are defaulting on their debt payments are taking hits to their credit background. This could impact the terms of future loans. So, take reports on fall of debts with a pinch of salt.