Consumer Balance Sheets: Flow of Funds Shows Debt Reduction at a Snail's Pace

(MoneyWatch)  It should be so easy--just live within your means. But once you're behind the ol' eight ball of debt, it sure is hard to dig out. That's what the Federal Reserve's Flow of Funds demonstrated today.

Why should you care about this geeky statistical report? Because if American consumers don't figure out how to mend their balance sheets, we are going to be in this pickle for a while.


At the end of 2008, households owed $13.8 trillion in debt. Even with an increased savings rate of 5.7%, whittling that sucker down is tough. The much-talked about and highly-anticipated deleveraging is occurring, but at a snail's pace.


The reason is clear: with jobs vanishing (total claims hit their 19th-straight record high at 6.82 million last week), wages stagnating and net worth shrinking, it's hard to make headway. Still, I have some hope that the era of tighter credit will help cure consumers of their past evil deeds.

Image by Flickr user Randy Son of Robert, CC 2.0