US households pay down debt for first time

We very well might be turning into Japan. U.S. households pay down debts for first time Net worth plunges at 18% annualized rate in third quarter, Fed data show By Rex Nutting, MarketWatch Last Update: 1:34 PM ET Dec 11, 2008 WASHINGTON (MarketWatch) -- Stung by the loss of more than $2.8 trillion in their net wealth, the nation's households paid down debts in the third quarter for the first time... [more]

We very well might be turning into Japan. U.S. households pay down debts for first time Net worth plunges at 18% annualized rate in third quarter, Fed data show By Rex Nutting, MarketWatch Last Update: 1:34 PM ET Dec 11, 2008 WASHINGTON (MarketWatch) -- Stung by the loss of more than $2.8 trillion in their net wealth, the nation's households paid down debts in the third quarter for the first time since at least 1952, the Federal Reserve reported Thursday. As of Sept. 30, the total outstanding debt for households shrank at an annualized rate of 0.8% from $13.94 trillion to $13.91 trillion, the Fed said in its quarterly flow of funds report. It's the first decline in household debt ever recorded in the report. Households paid off more mortgage debt than they took on for just the second quarter on record. Mortgage debt fell at a 2.4% annual rate to $10.54 trillion, as foreclosures mounted and fewer new mortgages were taken on. Other consumer debts, such as credit cards and auto loans, increased at a 1.2% annual rate in the quarter to $2.6 trillion. Total U.S. domestic nonfinancial debt increased at a 7.2% annual rate, boosted by a postwar record 39.2% increase in debt taken on by the federal government, mostly to fund the Federal Reserve's massive efforts to provide liquidity to credit markets. Excluding federal debt, U.S. debts rose at a 1% annual rate in the quarter. Business debt increased at a 2.9% annual rate, the slowest in five years. Corporate debt rose at a 3.7% annual rate, a four-year low. Net wealth With the stock market plunging and home prices falling rapidly, American households lost a total of $2.81 trillion in wealth during the third quarter, the most ever. Wealth fell at an 18% annual rate during the quarter, a rate exceeded only once in the past 56 years. Assets of households dropped by $2.7 trillion, while liabilities increased by $128 billion. Holdings in real estate fell by $647 billion. Direct holdings in corporate equities fell by $922 billion, while holdings in mutual funds fell by $423 billion. Life-insurance and pension reserves also declined, down by $653 billion. Homeowners' equity in their homes fell to $8.53 trillion from $9.04 trillion in the second quarter and $12.5 trillion in 2005; homeowners' equity has fallen to 44.7% of the value of the houses. The credit crunch The report covers the period from July 1 to Sept. 30, so it doesn't have anything to say about the approximately 30% loss in the stock market since then. But it does detail the depth of the financial and credit crisis during the third quarter. The Federal Reserve's balance sheet expanded by $2.35 trillion, more than 50 times as much as it typically does. Much of that money went to charted commercial banks, where liabilities increased by $1.8 trillion. Liabilities at thrifts, by contrast, fell $1.29 trillion. Commercial mortgages shrank by $54 billion, the first decline since 1995. The commercial-paper market shrank by $580 billion. Money-market mutual funds sold $486 billion in paper, partially offset by purchases of $413 billion by commercial banks. Net issues of corporate bonds fell by $755 billion, the first decline on record. Net issues of corporate equities fell by $82 billion. The household sector sold $139 billion more in equities than it bought, while mutual funds sold $116 billion more than they purchased. Exchange-traded funds purchased $298 billion more than they sold. [less]