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February 19, 2014

An Ambiguous Omen, U.S. Household Debt Begins to Rise Again

“American households took on $241 billion in additional debt in the fourth quarter of last year, signaling the end of an extended period of hunkering down. Total household debt increased 2.1 percent, the largest quarterly increase since before the recession, according to a new report from the Federal Reserve Bank of New York.

“After a long period of deleveraging, households are borrowing again,” Wilbert van der Klaauw, senior vice president and economist at the New York Fed, said in a statement.

“Asked if the report was good news or bad news for the economy, Mr. van der Klaauw gave a little laugh. “Good or bad, it’s hard to say,” he said. “In a steady state you would expect, in nominal terms, household debt to grow.”

“It was a measured statement that glossed over the complexity of the report. While a willingness to borrow can be an indication that households are more confident in their economic futures, it can also indicate that they are struggling to maintain spending levels in the face of high unemployment and stagnant wages.

“Some kinds of debt, like car loans and mortgages, may be a positive sign that people are investing in the future. Other kinds, like student loan debt, can put a damper on the economy by suppressing discretionary spending for years.”

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Read full NY Times article here

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