31. Household wealth and debt

On Monday Statistics Canada published revised National Balance Sheet accounts. The revision is technical; I will just point out some numbers:

National wealth:  $6 805 billion
Net foreign debt: $   277 billion
National net worth (difference between the two) $6 529 trillion, or about 4 times GDP
National net worth per person: $188 300 (remember it as around $200 000)

Big problem: household debt. It was, as percentage of disposable income:

•   87%   in 1990
• 141%   in 2007 (before the start of the Great Recession
• 162%   in 2011

This is not a big problem at present. Household debt service ratio (debt payments to disposable income) is close to historical lows since the interest rates are low.

But the ratio of debt to net worth increased significantly as the result of the Great Recession:

• from 1990 to 2007 it was between 18.4% and 21%
• from 2008 on it was over 24%.

If, as it is quite likely, the "fiscal cliff" is  not resolved, the US economy will go into a recession next year, dragging us along. In a recession households will "deleverage" (reduce their debt).
Deleveraging takes time and so consumption will be low for a long time, prolonging the recession.