A decade after the financial crisis that triggered the Great Recession, economists warn skyrocketing levels of debt may foreshadow a household debt collapse – and make it harder for families to recover when recession inevitably strikes.
Americans now owe almost 5 percent more than they did at the onset of the Great Recession, due largely to student loan debt that’s increased by a staggering 144 percent in 10 years.
“As we sit ten years out from the financial crisis, it feels like we’re at a similar juncture in the story of the U.S. economy,” Pamela says. “If history is any guide, we’re on track to experience another economic downturn, triggered by similar conditions – with a similar outcome.”
0TheFool / Pixabay
While the immediate cause of the Great Recession was the subprime mortgage collapse, American households took on record levels of debt prior to the downturn – in mortgages, charge card balances, auto financing, and student loans. That made them especially vulnerable, Pamela notes, when the recession wiped out more than eight million jobs between 2007 and 2009, contributing to more than four million homes lost to foreclosures.
Why we should be worried now about a household debt collapse:
Why does someone else’s car loan or MasterCard balance impact you?
Soaring household debt is a threat to banks, lending institutions, the markets, and consumers at large, posing a systemic risk to the economy, Pamela notes.