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(London.CityRegions.com, May 18, 2013 ) London, UK -- From the Great Depression up until recent years, there was a massive reduction in consumer debt that allowed sustainability in households. The reduction had much to do with the tightening of belts after banks wrote off bad loans, according to the economists of the Federal Reserve Bank of New York.
Even during a time of extensive job cuts, households pulled back a significant amount of borrowing. That is at least what occurred, according to a report that came out on April 22. Also noted was that at least a partially voluntary (and partially forced) growth of general standards for lending has also taken place.
"Holding aside defaults, from 2007 through 2011 consumers reduced their debt at a pace not seen over the last 10 years," said the report, "The Financial Crisis at the Kitchen Table: Trends in Household Debt and Credit.
"While consumers have seen a lowered their collective debts by a third, a combination of credit card and auto loan balances, the new numbers show a general learned behavior has cropped up, partially due to the economic downturn.
The decline in debt since 2008 could be likely attributed to lenders removing bad loans from the books, as they shut the door on those attempting to procure new risky borrowing amounts. However, that is not the only reason for the decline in debt, according to the new Fed analysis.
It, in fact, points to more subtle causes of the reduction.
"An analysis ... reveals that households actively reduced their obligations during this period by paying down their current debts and reducing new borrowing," the report said.
The Fed analysis indicated that the average household frugality is overall responsible for the downsizing of debt by over a third, while combined loaning cutbacks and auto loan obligations make up a majority of the remainder.
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