Research Topics

Publications on Household debt

There are 3 publications for Household debt.
  • Income Distribution, Household Debt, and Aggregate Demand

    Working Paper No. 901 | March 2018
    A Critical Assessment
    During the period leading up to the recession of 2007–08, there was a large increase in household debt relative to income, a large increase in measured consumption as a fraction of GDP, and a shift toward more unequal income distribution. It is sometimes claimed that these three developments were closely linked. In these stories, the rise in household debt is largely due to increased borrowing by lower-income households who sought to maintain rising consumption in the face of stagnant incomes; this increased consumption in turn played an important role in maintaining aggregate demand. In this paper, I ask if this story is consistent with the empirical evidence. In particular, I ask five questions: How much household borrowing finances consumption spending? How much has monetary consumption spending by households increased? How much of the rise in household debt-income ratios is attributable to increased borrowing? How is household debt distributed by income? And how has the distribution of consumption spending changed relative to the distribution of income? I conclude that the distribution-debt-demand story may have some validity if limited to the housing boom period of 2002–07, but does not fit the longer-term rise in household debt since 1980.

  • The Macroeconomic Effects of Student Debt Cancellation

    Research Project Report, February 2018 | February 2018
    Among the more ambitious policies that have been proposed to address the problem of escalating student loan debt are various forms of debt cancellation. In this report, Scott Fullwiler, Research Associate Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum examine the likely macroeconomic impacts of a one-time, federally funded cancellation of all outstanding student debt.

    The report analyzes households’ mounting reliance on debt to finance higher education, including the distributive implications of student debt and debt cancellation; describes the financial mechanics required to carry out the cancellation of debt held by the Department of Education (which makes up the vast majority of student loans outstanding) as well as privately owned student debt; and uses two macroeconometric models to provide a plausible range for the likely impacts of student debt cancellation on key economic variables over a 10-year horizon.

    The authors find that cancellation would have a meaningful stimulus effect, characterized by greater economic activity as measured by GDP and employment, with only moderate effects on the federal budget deficit, interest rates, and inflation (while state budgets improve). These results suggest that policies like student debt cancellation can be a viable part of a needed reorientation of US higher education policy.
    Associated Programs:
    Scott Fullwiler Stephanie A. Kelton Catherine Ruetschlin Marshall Steinbaum

  • Fiscal Austerity, Dollar Appreciation, and Maldistribution Will Derail the US Economy

    Strategic Analysis, May 2015 | May 2015
    In this latest Strategic Analysis, the Institute’s Macro Modeling Team examines the current, anemic recovery of the US economy. The authors identify three structural obstacles—the weak performance of net exports, a prevailing fiscal conservatism, and high income inequality—that, in combination with continued household sector deleveraging, explain the recovery’s slow pace. Their baseline macro scenario shows that the Congressional Budget Office’s latest GDP growth projections require a rise in private sector spending in excess of income—the same unsustainable path that preceded both the 2001 recession and the Great Recession of 2007–9. To better understand the risks to the US economy, the authors also examine three alternative scenarios for the period 2015–18: a 1 percent reduction in the real GDP growth rate of US trading partners, a 25 percent appreciation of the dollar over the next four years, and the combined impact of both changes. All three scenarios show that further dollar appreciation and/or a growth slowdown in the trading partner economies will lead to an increase in the foreign deficit and a decrease in the projected growth rate, while heightening the need for private (and government) borrowing and adding to the economy’s fragility. 

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