THE BASIS POINT

Consumer Debt “Only” 118% Of Disposable Income vs. Peak of 130%

In a recent report, the Federal Reserve Bank of San Francisco said low interest rates, lax lending standards, the proliferation of exotic mortgage products, and the growth of a global market for securitized loans promoted increased U.S. household leverage (as measured by the ratio of debt to disposable income) to an all-time high of 130% in 2007. The report says that home prices in the United States have dropped about 30% from their 2006 peak, but that the personal saving rate rose from around 1% to about 6% in the third quarter of 2010 and the ratio of household debt to disposable income dropped from 130% to 118%. Below is a chart of both personal savings and household debt from 1960 to present.