Man Without Qualities

Monday, May 12, 2003

Whose Debt?

Americans are widely thought to incur consumer debt more freely than people in other countries, especially countries with supposedly high savings rates - such as Germany. But the relationships among consumer and mortgage debt, supposed national character traits and economic optimism (or pessimism) are tricky things - and new information coming from Europe suggests that a good deal less is understood about these variables than is widely thought to be the case. For example, the F.A.Z. reports:

[C]onsumer indebtedness in Germany even exceeds that of the traditionally free-spending United States. ... And, according to experts, an estimated two million German households can no longer pay off their debt.

Even more interestingly, the German consumer's acceptance of such higher consumer debt is a recent phenomenon - that is, it is accelerating during a period of supposedly deepening economic anxiety - and this all seems to be happening at the same time the Germans maintain a high savings rate:

The OECD put total household debt in Germany at 112 percent of disposable income in 2001, compared to just 85 percent 10 years earlier. Debts of U.S. households, whose shopping spree is known to have helped bolster the flagging U.S. economy, stood at 109 percent of disposable income in 2001.

The OECD statistics also seem to confound the argument that the Germans are using most of their borrowings to buy their own house, while their U.S. peers consume on borrowed money: Mortgage loans account for an average 72 percent of disposable income in Germany, and for about 74 percent in the United States.

Yet the German savings ratio remains high in international comparison, at just under 10 percent of average disposable income in 2001. European Union statistics also put the Germans, together with the French, at the top of the European savings champions league. The Americans, for their part, put just about 3.7 percent of their disposable income aside for a rainy day.

Note: "consumer debt" does not normally include home equity loans - which are a form of mortgage.

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