Another Fine Mess: Consumer Debt To Income Keeps Falling, But So Does Household Income

The Federal Reserve pinned it’s economic recovery hopes on a simple premise: credit growth leads to rising real GDP by increasing consumption.
The problem is … bank credit growth has slowed to just over 1% (YoY) and the consumer debt to disposable income keeps dropping like a rock.
Here is a chart of Household Debt Service Payments as a Percent of Disposable Personal Income. It keeps dropping and is already below the lowest level since 1980.

Bank credit growth remains at a level below any data prior to 2009. And below levels from 1980.

Historically, bank credit growth is typically higher than real GDP growth, except for a few occasions. Like now.

And if I compare YoY bank credit growth to real median household income (green line), we see the reason for stalled credit growth. Declining then stagnant household income.

Now, let’s chart household debt service as a percentage of disposable income against real median household income. I think I see a pattern.

Now let’s chart mortgage credit growth YoY against the U.S. homeownership rate. Government housing policy encouraged lowering of credit requirements and a surge in mortgage lending.

In fact, government “affordable” housing policies (led by President Clinton and HUD Secretary Andrew Cuomo and HUD Assistant Secretary Susan Wachter) led to house prices more than doubling … before foundering.

Government responded to the credit crisis by passing massive financial market legislation like the Dodd–Frank Wall Street Reform and Consumer Protection Act . Which begat the Consumer Financial Protection Bureau. Great. Congress and the Administration ignored the collapsing household income (which makes borrowing more difficult) and then layered phone books of new laws regulating lending.
Notice that both Barney Frank (D-MA) and Chris Dodd (D-CT) fled Congress after they passed their Magnus Dopus. But we still have Elizabeth Warren (D-MA) whooping it up along with Richard “Robocop” Cordray.
The Federal Reserve’s massive quantitative easing program has done nothing for the middle class household.

And “the thrill is gone” for bank credit growth with the advent of QE3.

But at least stock market investors are thrilled with massive Fed intervention, particularly with QE3.

Now you know why M2 Money Velocity is so bad. Declining/stagnant real median household income.

Another fine mess Federal housing policy and The Fed has made.

And here is the theme song for HUD and the Federal Reserve.