Rising Debt vs. Falling Interest Rates

Here's the first thing we know. The household credit market debt outstanding has been rising at an alarming rate for many years, even when adjusted for inflation and the growing population. One might say it even looks a bit parabolic.



Here's the second thing we know. For the last 20+ years interest rates have been falling and have given us one heck of a tailwind.



So let's do a ballpark estimate chart to see what the annual interest payment would be on all that debt above if it was continually refinanced at the 10 year treasury rate plus 2% (so banks can make lots of money off of our borrowing).



Let's call 1980 to 2004 the "what do you want your payment to be" era. Anyone who has ever bought a car knows what I'm talking about. Interest rates were falling. It seems likely that consumers simply borrowed more to enjoy the ride. As can be seen in this "what if" experiment, it was a virtually pain free thing to do.

Let's call 2004 to present the "how do I keep my payments small" era. Anyone who has bought a house using an interest only adjustable rate mortgage with a low teaser rate knows what I'm talking about. Interest rates were rising. It seems likely that consumers didn't want to stop doing what seemed to work so well for 20+ years.

In any event, it seems likely that something changed in 2004. That's the year I turned a bearish on our economy. That's when I first started thinking in terms of stagflation: gold and silver (not that I own those metals now, for what it is worth).

See Also:
10 Year Treasury Yield (I will be posting a new version of this soon.)

Source Data:
St. Louis Fed: Liabilites: Household Credit Market Debt Outstanding
St. Louis Fed: Consumer Price Index For All Urban Consumers: All Items
St Louis Fed: Population: Mid-Month
St Louis Fed: 10-Year Treasury Constant Maturity Rate