Household wealth increases by $1.2 trillion

The household debt in America increased for the first time in three and a half years by the end of 2011. This implies that Americans are increasingly comfortable with borrowing money and this will lead to spending.

The data released by the Federal Reserve showed that household wealth is increasing by $1.2 trillion. Though the economy has not fully recovered, it on its way from the crisis that was gripping the country and put so many out of work. But the rising incomes have made the fourth quarter different. For the first time the household debt to after-tax income has fallen by 117.5 percent. It’s the lowest since 2004. The household debt to after-tax income was 118.2 percent in the previous quarter.

Consumer credit has been swelling in the last three months of the past year. In 2001, after the 9/11 attacks, credits rose significantly. Since that period this is the biggest gain. It has increased by 6.9 percent. Reports show that people have been borrowing primarily for college and cars.

Even by October-December the households kept shedding their mortgage debts. This made up for the majority of their liabilities and it declined at an annual rate of 1.5 percent. This pace in decline is the slowest in last two years. This also suggests that the country is getting closer to recovering from the debt crisis.

Economists say that as the economy gets in to better shape; it’ll lead to consumer growth. An economist said “The combined wealth effects from financial and housing assets (will likely) begin lending increasing support to consumption growth as the year progresses”.

All this extra wealth could mean more money for the people to spend. In the fourth quarter alone the non-financial corporate businesses had about $2.233 trillion in liquid assets like cash. But in the previous quarter they held only $2.120 trillion. The companies are still wary about investing.

People have gone through a lot since the housing burst and triggered one of the harshest recessions the country witnessed. Families and households have been working on reconstructing their net worth. Even with these changes the household net wealth is not as high as it was in the second quarter.

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