Will consumer debt kill the recovery?

CCLACBM027SBOG compared to the personals savings rate, GPSAVE_PC1

The chart above shows two series: first the amount of consumer loans outstanding at commercial banks (CCLACBM027SBOG, black line) compared to the personals savings rate (GPSAVE_PC1, blue line), while the grey vertical bar illustrates The Great Recession; some observations are apparent.

First, consumer loans apparently surged immediately after the Great Recession, jumping 65% from March to April, 2010. Its not clear what drove this sharp increase in debt but it has clearly stagnated at that level, declining only 6% since hitting that peak. At the same time the rate of savings has gradually been declining, from robust increases observed during The Great Recession (April, July, October of 2010 and January, 2009 saw the rate of savings jump 20.7%, 18.6%, 11.8%, 17.1% respectively) to absolute contractions in savings starting in April, 2011.

Here’s what I think is going on: its well documented (both on this blog and elsewhere and please ignore the short term increase that was driven by a raft of special dividends at the end of 2012). So Americans earnings have declined while they’re apparently determined to keep up their living standards: max out the credit cards and other debt facilities, then start to pull money out of savings.

Pretty simple, but hardly sustainable. Will this profligacy kill the so-called US economic recovery?

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