Greenspan says US Household balances in good shape

Greenspan has taken a look at the health of the average household balance sheet — He likes what he sees.

Decades of low interest rates and extra cash from refinancing have given people flexibility to better manage their debt, the Fed chief said in a speech to a credit union conference.

While elevated bankruptcy rates in the past several years are troubling because they highlight the difficulties some households experience during economic slowdowns, Greenspan said that “bankruptcy rates are not a reliable measure of the overall health of the household sector because they do not tend to forecast general economic conditions and they can be significantly influenced over time by changes in laws and lender practices.”

Most importantly, I guess, the share of income devoted to paying interest+principal on household debt has remained relatively stable over the past couple years, despite increasing debt loads.

Home mortgage refinancings and a solid rise in home values helped to bolster consumer spending during economic hard times as well as during the recovery, Greenspan said.

“Over the past two years, significant increases in the value of real-estate assets have, for some households, mitigated stock market losses and supported consumption,” Greenspan said.