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| Graph #1: Debt Service Payments are Finally Going Up Again |
It dropped like a rock, from above 13.0 before the Great Recession to just below 10.0 in 2012 Q4. It bounced back up a little, then continued down more gradually until 2014 Q4. Then it ran flat for all of 2015. And then after 2016 Q1, it started going back up.
Debt service on the rise, it costs us money. But it also means we're borrowing more. And if we're borrowing more, the economy is picking up. Starting to grow, at last.
I called it on March 3, 2016. That was the bottom, I said. Vigor is coming, I said.
Look for GDP growth to be better than 3% next year. Productivity will be going up, too. Maybe this year. And, frankly, Obama (or maybe Ben Bernanke) should get most of the credit. Not Trump. But let that be the least of your concerns.
Don't sit on your ass. We have to take advantage of the good years we'll soon see, to supplement interest rate policy with tax policy that encourages the repayment of debt as a way to prevent inflation. If we don't, we may never get another chance.
3 comments:
The Debt service number consists of about half interest payments and half payments on loan principal.
The increase in the percentage of disposable income going to debt service is almost entirely due to increased repayment of the loan part and not the interest payments part.
Also with the new tax cuts we are going to see a sudden increase in disposable income and this a sudden drop in debt service when the 2018 numbers come in. The drop should be about the same size as the jump was in Q1 of 2013.
Oh, interesting. I remember you explained the 2013 Q1 jump to me before. But it didn't occur to me to expect a sudden drop from Trump's tax cut. :)
Trump is saying this is the biggest tax cut in history so you would think it would show up on the disposable income graph (and debt service graph). Larger paychecks due to the cuts started last month.
But it may not appear suddenly. The 2013 increased taxes was due to ending several tax cuts. Looking at the disposable income graph the tax cuts did not cause a sudden change in disposable income when implemented like they did when they ended but were apparently counted as changing income slowly over the entire year - not all in one month.
The cut in income in 2013 was about $1000 a year per household. I haven't heard what the average will be for the current tax cut.
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