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Have Consumers Been Deleveraging?

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Abstract

Since its peak in summer 2008, U.S. consumers’ indebtedness has fallen by more than a trillion dollars. Over roughly the same period, charge-offs—the removal of obligations from consumers’ credit reports because of defaults—have risen sharply, especially on loans secured by houses, which make up about 80 percent of consumer liabilities. An important question for gauging the behavior of U.S. consumers is how to interpret these two trends. Is the reduction in debts entirely attributable to defaults, or are consumers actively reducing their debts? In this post, we demonstrate that a significant part of the debt reduction was produced by consumers borrowing less and paying off debt more quickly—a process often called deleveraging.

Suggested Citation

  • Meta Brown & Andrew F. Haughwout & Donghoon Lee & Wilbert Van der Klaauw, 2011. "Have Consumers Been Deleveraging?," Liberty Street Economics 20110321, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednls:86737
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    Keywords

    Consumer debt; Defaults; Mortgages; Deleveraging; Foreclosures;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior

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