Debt Burden Grows

The growth in the debt burdened carried by American households began to accelerate in the 90s.  Adjusted for inflation, the average family in the 1990s had a debt to income ratio of 85%.  That means that a family with an after tax income of $40,000 would have debt of $34,000.  By 2007, that ratio had climbed to 130%.  So that same family making $40,000 would have $52,000 in debt.  Since 2007, that number has fallen, but remains significantly over 100%.

Debt Burden Shouldered by Bottom 20%

More troubling is the impact of credit on the bottom 20% of households by income.  For that group, the debt-to-income ratio has grown to over 220%.  For 80% of households, the debt-to-income ratio is a staggering 170%.

Credit Cards Create Entitlement

The credit culture of the last 15-20 years has created a sense of entitlement in consumers that cannot be maintained in the absence of ever escalating credit.  Either Americans who cannot afford new consumer goods are going to have to be told, no more, or credit is going to have to be increased so that this crisis can be pushed down the road a little further.  But, eventually, a consumption-based economy cannot continue to grow when the growth is credit driven.  How this debt burden is reduced over the coming years will go along way toward determining the direction of the American economy.