From 1980 until the start of the financial crisis of 2007 and 2008, U.S. households accumulated debt at an unprecedented pace. Back in the 1960s and 1970s, the ratio of total debt to disposable income – a measure that reveals households’ ability to service their debts out of current income – hovered around 70 percent. Thereafter it rose, increasing to 90 percent by 1995 and peaking at 135 percent in 2007, before declining to 110 percent in 2013.
The financial meltdown brought new attention to the debt loads facing American households, in part because many analysts fingered defaults on subprime mortgages as a chief cause of the crisis. But policy responses have focused too narrowly on financial market reforms. Certainly it makes sense to curb the unfair and fraudulent lending practices that have proliferated over the past few decades, yet new financial regulation alone won’t make most working families more economically secure. For that, we must understand and address the intertwined social, political and economic trends that have created insecure labor markets and heightened debt risks. more...