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Comment by crimsonalucard | Hacker News Reader

So is the US in a bubble or not? If we are, why? If we aren't why not?

I'd say no. The US is one of the few developed nations that has been busy paying down household debt for the last five years. It's in far better shape than its peers. [1]

Most major economies have been taking on increasing amounts of household debt, or are already carrying too much. That includes: Norway, Sweden, Belgium, Denmark, Finland, Switzerland, the Netherlands, France, Canada, Australia, New Zealand, Spain, Ireland, Portugal.

Others like Italy have taken on more debt (30% more in ten years), but started from a relatively low base. Or Japan, which has a bit too much household debt but has been flat for 20 years.

The US, Germany and the UK are among the few that have been actively reducing household debt.

In the US assets are richly valued due to the former QE and low interest rates, but there isn't a bubble (yet anyway). If the US continues to reduce household debt, while boosting employment and wages (the US unemployment rate is half that of the Eurozone), that will only improve the situation. The US will very likely substantially outperform its peers over the next decade; the strong dollar has reclaimed a lot of lost purchasing power for the middle class, effectively giving Americans a 20% pay raise versus the rest of the world (and that's before interest rates climb).

[1] http://i.imgur.com/718Coeb.png

> The US is one of the few developed nations that has been busy paying down household debt for the last five years.

In the US, the people with the highest debt-to-income ratios have been briskly filing for bankruptcy over the last five years. I wish I had time to dig up another graph to match yours, volume of personal bankruptcy filings over the same period. It's correlated. It's also a much stronger effect than paying down, often someone with over 100% debt-to-income goes to 0% over a matter of months, with no change in income at all.

Yeah, but the point is, once the debt is cleared, by being paid or by bankruptcy, the private sector steadily regains its ability to plan rationally and pass information around in price signals. That's why fairly "easy" bankruptcy laws are usually considered more pro-business, while "moralizing" bankruptcy laws, as more often found in Europe, are actually considered to depress the economy (by simultaneously mobilizing vast machinery to pay out on "bad bets" and heavily penalizing business failure, thus increasing the risk-up-front of entrepreneurship and investment).

That's only partially accurate. The explosion of personal bankruptcies due to the great recession was mostly cleared by early to mid 2011. Since then, the household debt to income ratio has continued to fall. And meanwhile, wages are climbing, unemployment has dropped substantially (including on the U6), and full-time jobs have roared back in the last 3.5 years. The median household credit score has also been climbing for several years since the bankruptcy flood years.

While the household debt is lower now (still high, though), you conveniently omitted:

1. the student loan debt, which, in $ terms, recently exceeded the "regular" household debt.

2. the gross federal debt (April 2015) is $18.15 trillion. Went up from 10.63 trillion in the last 7 years (under Obama's administration)

3. reflating real-estate prices back to absurd levels

4. while not a debt indicator, an important factor: Record LOW number of people in the work force (the lowest in 30 years or so). If you don't work, it is hard to pay down your debt, no?

Student loan debt is $1.2 or so trillion. Household assets are $86 trillion. It's not an issue compared to the vast household assets. The median student loan debt, for adults with student loans, is around $13,000 - not a menacing sum, even if it has climbed a lot in the last ten years.

Gross federal debt only gets included if we're going to count gross national assets: $225 or so trillion. Not to mention, that public debt is backed by the global reserve currency, which grants immense privileges to the US economy. A 100% GDP to debt ratio, while high, is manageable (and yes, we'll see what happens in the future given entitlement costs). The US also has spare taxing capacity when it comes to the upper 25%, versus most other developed nations (the US has among the highest disposable income levels).

Most of the developed world has expensive real estate, a consequence of relatively low interest rates. In no way is it unreasonable to compare apples to apples.

Full-time employment has increased by seven million in 3.5 years. While the drop in the labor force participation rate is a drag on the economy (some of that is legitimate boomer retirement and an aging population), the US participation rate is still very healthy compared to peers (it's 10 points higher than Belgium by comparison).

Not sure which assets you are talking about:

1. Half of US households have no retirement savings:

http://www.bloomberg.com/news/articles/2015-03-12/the-retire...

2. One third of households making > $75K live paycheck-to-paycheck and are essentially one or two months of unemployment from bankruptcy:

http://www.washingtonpost.com/news/get-there/wp/2015/04/16/o...

3. Disastrous healthcare costs (roughly $20K per family per year). You may or may not be paying it directly out of pocket (your employer may be paying for you, or you my be subsidized), but that's what it costs.

Also remember that asset (mostly housing and stocks) values are on paper and may (and will) go down if the economy keeps slowing down as it has been since the dead-cat bounce of 2010-2011.

One more thing: asset ownership is heavily concentrated in the hands of the 1%.So out of 100 students, 1 can pay many times over, the next 9 too, with more pain. At least 50 students are penniless and with the job market paying what it is paying, they may never pay back their student loans - what could possibly go wrong?

Where do you have your numbers for increasing household debt from? I'm a young Norwegian looking to buy real estate around a major city. Rents are ridiculous when compared to an equivalent mortgage (rent is always higher than interest + principal on an equivalent owned property, and that's before withdrawing the interest rate expense on taxes).

But it's very unsettling to have seen real estate prices climb twice as fast as the average increase in salary, and three times faster than inflation for the last 20 years. 2012 numbers put out average household debt at 213% of net disposable income. If you're young and buying a home for the first time, you're looking at ~350%, and that's a conservative number. It's disturbing.

Norway is of course one of the few countries that can afford to carry a 200%+ household income to debt ratio and get away with it (not to say it's desirable granted). That ratio hasn't increased much the last couple of years, so it may have stabilized. I know there is still broad concern about it:

http://www.thelocal.no/20141104/high-household-debt-in-norwa...

http://www.reuters.com/article/2014/02/04/norway-debt-idUSO9...

The sort of bright spot to that, is debt levels can't climb perpetually. The most likely trajectory for Norway's housing market is a reduction in real housing costs. Oil is going to be relatively cheap (in my opinion) for the next ten years. That will reduce Norway's growth, remove some of the froth in assets caused by the oil boom the prior ten years; and the government is already on top of managing the consequences of that: financial belt tightening will be the longer term outcome.

Unless Norway does something stupid, it seems most likely that the housing market, and household debt levels, are close to peaking. Norway's situation is quite similar to Canada and Australia's natural resource driven real estate bubbles.

If I were a young professional in Norway, I'd rent, build up wealth, and wait to see how the oil industry gets hit (not to mention what the total fallout of Scandinavia's debt binge is over time, with local knock-on effects from surrounding countries). A house is mostly an expense, a place to live, unless you're starting a family. I'd wait to see how this shakes out. The odds strongly favor that very large gains in assets backed by a commodity boom, will have a down swing once that boom has ended. Worst case scenario, unless oil goes back up, housing in Norway is unlikely to move a lot higher. In the meantime you can work on building up your own balance sheet, and not overpay for a place to sleep at night. When it comes to buying assets, I've always liked Warren Buffett's adage: be fearful when others are greedy, and be greedy when others are fearful, aka don't chase bubbles, time is on your side, be patient and buy when assets are on the cheaper side - for now, put your capital to more productive use.

Thanks for the insights. I definitely understand your thoughts on waiting things out. It's a difficult call since the immediate expenses are higher when renting and hence it's harder to build up savings, but OTOH is's very possible to get "wiped out" (go underwater) in a downturn. And that's certainly not a way to save money.

Out of curiosity, is economics a hobby of yours or is it part of your profession?

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