Statistically speaking, American households deserve a pat on the back for debt reduction over the past four years.
In reality, the worst ways possible have been used for the decrease, according to an article by The Atlantic.
In a time of crisis, there are a few ideal ways for a nation to overcome it.2 comments on this story
“The ideal way for a country to deleverage would be for incomes to rise faster than debts,” said Matthew O’Brien, in his Atlantic article. “The second-easiest (but far from ideal) way would be for practically every household to default on their debt, forcing the banks to lower credit standards, which might encourage people to borrow their next batch as the economy improved."
The change has come in a combination of both for the negative, O’Brien said. As wages have stayed the same as well as low inflation, cutting debt is hard without trimming other spending elsewhere.
Even though large numbers of households have defaulted, there were not enough to cause banks to lower credit requirements.