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Income InequalityWhy It Matters and Why Most Economists Didn't Notice$
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Matthew P Drennan

Print publication date: 2015

Print ISBN-13: 9780300209587

Published to Yale Scholarship Online: May 2016

DOI: 10.12987/yale/9780300209587.001.0001

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Consumers’ Shift to Debt

Consumers’ Shift to Debt

Chapter:
(p.35) IV Consumers’ Shift to Debt
Source:
Income Inequality
Author(s):

Matthew P. Drennan

Publisher:
Yale University Press
DOI:10.12987/yale/9780300209587.003.0004

Debt of households has been rising rapidly since 1995. The debt to income ratio of the bottom 95 percent of the income distribution has risen well above 140 percent. The same measure for the top five percent has been stable near 60 percent for 25 years. Low interest rates, easy credit terms, subprime mortgages, and mortgage refinancings have all stimulated consumer borrowing. The housing bubble, nationwide, encouraged consumers to extract cash from their properties. Panel regressions relating per capita household debt to declining income shares by state of the bottom 80 percent show that as income shares decline household debt rises. Economic insecurity objectively measured has been rising. The share of household budgets spent on the necessities of housing, health care and education have risen for all quintiles. Prices of those three have exceeded inflation for 20 years. Stagnant incomes and rising prices for those necessities have lured households to take on more debt to sustain their standard of living.

Keywords:   Household debt, Subprime mortgages, Mortgage debt, Foreclosures, Economic insecurity, Consumer price index

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