This is an important addendum to the latest piece on the problem of debt at the US household level.  Several readers were quick to point out that the last piece (seen here) did not elaborate on the unevenness of the wealth disparity and the debt disparity amongst American households.  The following paper from the Levy Institute’s Edward Wolff does a nice job of summarizing how the gap has grown over time and how the problem of debt is largely a middle class issue:

“I find here that the early and mid-aughts (2001 to 2007) witnessed both exploding debt and a consequent “middle-class squeeze.” Median wealth grew briskly in the late 1990s. It grew even faster in the aughts, while the inequality of net worth was up slightly. Indebtedness, which fell substantially during the late 1990s, skyrocketed in the early and mid-aughts; among the middle class, the debt-to-income ratio reached its highest level in 24 years. The concentration of investment-type assets generally remained as high in 2007 as during the previous two decades.”

As you can see, the author found that the problem of debt is increasingly concentrated on the middle class where debt/income ratios surged from 66.9% in 1983 to 156.7% in 2007!  That compares to a decline for the top 1% of 86.8% in 1983 to 39.4% in 2007.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • George H

    The paper was published in March 2010, probably based on data as of end of 2009. Do you think the picture has changed materially since then?

  • George H

    Actually, it was only up to 2007.

  • Cullen Roche

    Probably improved a bit, but on the whole the situation is probably not changed much….Just a guess though.

  • Jon

    Cullen, can you clarify if the Debt/Equity is a percentage or multiple. I’m hoping it’s a percentage as 12 times debt/equity sounds quite high.

  • beowulf

    Its like Benjamin Disraeli (Queen Victoria’s favorite PM) said, “The castle is not safe if the cottage is unhappy”. Tyler had an interesting story up a couple of weeks ago, “Attention Marxists: Labor’s Share Of National Income Drops To Lowest In History”

    The most annoying sort of economic problems are those that have a simple yet politically impossible solution– to quote Greg Mankiw:
    “However much redistribution we choose, the best way to accomplish it is by a progressive system of taxes and transfers. Economists sometimes call this a negative income tax, because low-income individuals pay a “negative” tax.”

  • Andrew

    Debt to income of 156 to 1? That seems absurd. The report says that it was computed from Survey of Consumer Finances, but can’t see how it was arrived at from that report (though I only looked briefly). Debt to assets don’t look near as bad as what was listed.

  • El Viejo

    So the hyper rich (that usually control what they are paid through their crony board memebers) have systematically destroyed the middle class of this country and now their cash cow corporations are hoarding what remaining cash they can get their hands on till judgement day. Well guess what – it’s heeeeere!

  • LVG

    It says 156%. Not 156:1.

  • nark

    well in the uk it’ll get worse- all of our students are going to start their working lives $8ok in the red stuff as of next year. you americans save up a college fund for your kids; we just push the problem into the future and carry on whinging. what this kind of debt profile will do i’d hate to think, but we won’t just be intellectually bankrupt one day.

  • Coolidge Low

    Take Volker to the shed. End the absurdity of his usury laws. If you are a dead beat who does not repay your loans you should not be allowed to borrow! Go without until you can afford it. If you do not qualify for a prime loan you should look in the mirror and blame yourself as a root cause of the problem we are in today (excluding a medical need or some other act of God beyond any mortals control).

    (oikonomikos is as old as the written language).

  • rhp


    I believe there are other factors at work here. When major banks can set up shop on campus and entice 18 y.o. whose brains have not yet fully matured with debit cards linked to a $25,000 account for their “student loan”, I don’t believe the entire fault is with the students. The loan is not being made in the interest of the student’s convenience, but with an eye toward generating the biggest loan possible with attendent fees.

    Likewise, with liar’s loans, financially unsavvy consumers were advised to take out far bigger mortgages than were prudent in order to generate large fees for realtors, mortgage brokers, and bankers all the way up the chain.

    Canada has so far avoided much of the mortgage mess we face because regulations continued to require 20% down. Is that regulation such a bad thing?

    Yes, there is “let the buyer beware”, but there IS also a social fabric that could mean looking out for others with a small modicum of civility. Cullen’s website is a good example of this………

    Coming from a medical background, (me)…….if medicine was regulated the same way that the financial industry is regulated, you would hope like hell you never had to go see a physician!

    There is a reason why public trust in bankers was recently polled at 14%.

  • Roger Ingalls

    My takeaway stat from Levy is that the top 5% of Americans (in net wealth, which he does clearly define) have increased their share of net wealth at the expense of the bottom 95% (pg 45).

    Here’s an interesting piece from a while back showing how badly the average American is at estimating the income/wealth equality.

  • Roger Ingalls

    Thanks for the reminder of how truly awful the Zero Hedge comment section is.

    Is there an emoticon for a shudder?

  • B B


  • epicure3

    Looking out for others comes under the heading of “I paid my taxes”. As the boats, TVs and fancy cars get carted away, the people standing there aghast that their “lifestyle” has gone bye-bye should have no illusion as to how this came about. I do not subscribe to the theory that the banks held a Cross pen gun to the temples of these “debt/income victims”. Explain to me how it is remotely possible that a person would get a loan with payments that they could never keep up? I’ll give you my supposition. It’s called greed and materialism. If they saved instead of spent, then they would be in a better position now. Wouldn’t they? The only other reason I can think as to why people would take out loans they couldn’t afford? Simple minded stupidity.

  • quark


    You might have heard of the term interest rate and its function in debt commerce. It is a numeric representation of the price of risk that the seller places on the buyer and the buyer must accept or go without. This is the currency of debt.

    Now in today’s marketplace when a seller of debt defaults, say for popular example, a mortgage default, the seller of debt is kicked out of their house, their credit is damaged for a period of time and they may be pursued by the buyer of the debt or those the buyer has sold the debt to for some time…the seller of debt however has the Federal Government to bail their ass out.

    That sir, is the rule of debt commerce in which we live in today.

  • quark

    Another interesting read from Paul Farrell of Marketwatch titled “Adam Smith’s capitalists have warped into egocentric narcissists”

  • rhp


  • rhp


    “Explain to me how it is remotely possible that a person would get a loan with payments that they could never keep up?”

    The answer is simple……when people in the the financial system have an incentive to create a loan that they do not care if it is paid or not. William Black calls it “control fraud”. In addition to his book, you might check out “Student Loan Scam”. In addition, many borrowers are not as financially sophisticated as you may be and relied on the advice of unscrupulous advisors in taking out the loans. There is a reason why wealth disparity is increasing in this country…… Yes, we all have personal responsibility and spending beyond one’s means is foolish, but the picture is not as clearcut as you paint it.

  • Wulfram

    Apparently you’ve never been to a neighborhood where payday loan and cash cashing stores are more common than dandelions on an unkempt lawn.

    The sad truth is, our education system does not do a good enough job on providing our citizens, our neighbors the mathematical skills needed to do basic finance. It’s also human nature to be short sighted about long term risks. How much cardio exercise do you get a week? I would admit that I myself do not get enough.

    In a somewhat ironic twist of fate, Ben Bernanke remarked in an interview that he had to refinance his mortgage because his option-arm “exploded” on him. If the Chairman of the Federal Reserve — who presumably has some say on the interest rates of debt — can’t figure out how much debt his household can safely handle, there’s really no hope for the majority of us.

    Especially when I read studies like this. Facepalm.

  • goodfriend

    everybody went nuts about pension accounts…a vast pile of fees for bankers, intermediates etc…

  • Coolidge Low

    rhp, you are correct and I did not go far enough. However, an 18 year old is smart enough to avoid crime, drugs (excluding freshman year) and all other vices, they should be smart enough to avoid financial suicide. In my humble opinion, they grew up watching the madness and without the discipline to avoid the materialism they get sucked into _ _ _ _ (fill in the blank).

    Bring back the ghost of Teddy Roosevelt and break up the TBTF.

  • rhp

    totally agree,

    to me, there is a lack of responsibility on BOTH sides of the creditor-debtor aisle and greed and consumption are driving both sides. i’m caught in a dilemma of having to drive to make deposits at my neighborhood credit union, or staying with the TBTF bank with its branch conveniently located w/in walking distance.
    S***!! I have much easier decisions to make than most!

  • Andrew

    No, it says “Debt/equity ratio”. A ratio is not a percentage. I don’t know how you can expect anyone to take your report seriously if you aren’t careful to convey the data that is clear.

  • jeffc

    So trickle down economics means all the debt trickles down?

  • jeffc

    Here is Bernanke’s 60 minutes take on the income gap on you tube.
    Only the first 20 seconds is relevant