St Louis Mortgage: Americans Are Reducing Debts at Record Pace

St Louis Home Loans and In House Financing News: Americans Lead in Debt Reduction Compared to Other Countries

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There is surprising financial news about the average Americans cutting their debt faster than other countries and as according to latest economists may already be halfway through this de-leveraging process. This grand undertaking could be setting the stage for a possible economic recovery, confirmed a new report from McKinsey Global Institute.

But the harsh reality is that although U.S. consumers are going the right direction concerning their debts, they probably won’t be as powerful a fiscal engine of global growth as they were before the credit crisis, warns the same report. According to McKinsey analysts, de-leveraging happens in two stages: First, the private sector reduces debt, while economic growth is negative or minimal and government debt rises; then, growth starts to rebound and proceeds to support gradual government de-leveraging.

“Somewhat surprisingly, given the amount of concern over the U.S. economy, we find that the United States is furthest along in private-sector debt reduction and closest to beginning the second phase of de-leveraging,” says the report. “The remaining obstacles for its return to growth are its unsettled housing market and its failure to lay out a credible medium-term plan for public debt reduction,” concludes the report.

Since the financial crisis of 2008, the combined U.S. household debt has fallen by $584 billion, or about 15 percentage points relative to disposable income, which is more than in any other foreign country. At this pace, Americans could reach sustainable debt levels by the middle of 2013. The report also found that since the 2008-2009 financial crisis the world’s ten largest developed economies have seen their total debt increase, primarily due to growing government debt.

There are three countries that have seen a decline in the ratio of total debt involving GDP during this time period including the U.S., South Korea and Australia. On the contrary, both Spain which at this time has caused financial disruption in Europe due to their floundering economy and the United Kingdom are de-leveraging their debts at a much slower pace. At this current pace, it could take another decade until their private-sector debt returns to the pre-bubble levels.

In the United States, most of the private sector de-leveraging has happened in the financial sector, where debt relative to GDP had declined from $8.3 trillion down to $6.1 trillion, levels that have not been seen since 2000.


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