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Household debts: Half-empty or half-full?

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Is the household money glass half full or half empty? The Federal Reserve’s latest quarterly survey (second quarter, 2011) shows that households are making progress at reducing their debt burdens. Borrowing rates remain below the peak years of 2003 to 2007 for many loans, too. Considering the recession, the anemic recovery, the worst labor market since the 1930s, and little to no wage increases, it’s remarkable how much better off are households.

Problem is, far too many people are still financially vulnerable in an economy that’s crawling along at best. The need to shed debt–either voluntarily by paying it down or involuntarily through write-offs–is strong.

In other words, don’t look to the consumer to boost the economy by whipping out their credit cards or taking out a home equity loan anytime soon. People need to owe less and save more.

Fact is, people overburdened with debt can only do so much. In Debt: The Forgiveness Fix, Peter Coy of Bloomberg Businessweek makes a strong case for governments and banks in the U.S. and in Europe to write-off a lot more debt. “Getting the global economy moving again means accepting that some debts will never be repaid–and the sooner they’re forgiven, the better,” writes Coy.

Until then, the wellsprings of economic recovery in the U.S. are going to have to come from somewhere other than the consumer.

Here are some household debt highlights from the Federal Reserve’s quarterly report:

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