Many of you have probably heard recent reports that total consumer debt has finally surpassed its previously peak, which was during the Great Recession’s height. Nearly a decade after that economically disastrous time, do the newly released data imply that we’re on the verge on another downturn? The short answer is probably not, but the longer response may include more in-depth analysis on other economic variables. However, it’s still important to know the true nature of current consumer debt levels, specifically the fact that they really aren’t nearly as high as everyone thinks and repayments of this debt are progressing much more conservatively and less volatile than a decade ago.

In figure 1 below, the graph displays total consumer debt (left axis), which is the sheer amount of consumer debt, according to the Federal Reserve Bank of New York (NY Fed). The right axis, however, reveals a truer illustration of consumer debt levels since 2003, since it accounts for changes in inflation. Basically, as inflation increases over time, the purchasing power of each dollar is less – meaning $1 can buy fewer items than before. This is partially the reason for why bread cost just a few pennies in the early 20th century or going out to a movie theatre would be significantly cheaper decades ago than it is now. By adjusting for inflation and translating the nominal debt amounts into a “real” value, we can more accurately examine consumer debt over time.

As the above graph shows, yes, total consumer debt in Q1 2017 surpassed its former peak of $12.68 trillion in Q3 2008, but only in nominal terms. After adjusting for inflation, we can clearly see that Q1 2017 debt is still significantly lower – nearly $2 trillion in 2016 dollars – than its peak in 2008. This immediately reveals the power of inflation that many people and news outlets like to overlook just to get the “breaking” headline.

Additionally, figure 2 reveals that the incredibly high consumer debt levels immediately preceding and throughout the Great Recession were significantly more delinquent and unhealthy than current ones. This graph illustrates that a significantly higher percentage of consumer debt was delinquent – at some level – than today. In fact, less than 5% of all consumer debt was delinquent in Q1 2017, compared to the Great Recession’s levels, which hovered between 7% and 12% each quarter. Furthermore, by looking at the graph, we can see a completely different trajectory between the two time periods: a sharply rising rate throughout 2007 and 2008 versus a relatively stagnant – if not declining – rate over the last two years. This suggests that current consumer debt, at least over the last 30 days, is relatively safe compared to previous levels, which is another fact that many people overlook when discussing debt levels surpassing 2008 levels.

In all, we're not disagreeing that total consumer debt has finally surpassed its Great Recession peak, but rather providing additional context to illuminate the statement. There’s no doubt that debts are relatively safer compared to a decade ago, and inflation had a substantial impact that many people overlook. Nonetheless, rising debt levels should provide the ARM industry with more opportunities since there’s a greater need to collect upon these higher amounts and from more borrowers. Overall, Kaulkin Ginsberg projects that total real consumer debt won’t surpass the Q3 2008 peak for at least five more years, barring another major economic recession.

About Kaulkin Ginsberg

Kaulkin Ginsberg is the foremost M&A and strategic advisor to the outsourced business services industry. For decades, ARM professionals, owners, and investors worldwide have relied on us for the insight, access, and information needed to make critical decisions. If you have any questions or wish to confidentially discuss your business interests, please contact a member of our strategic advisory team at



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