Households appear to be making a concerted effort to hold safer assets. In fact, in the first quarter they bought more Treasuries than the Fed and overseas investors combined. Should foreign appetite for Treasuries wane, households may therefore be willing and able to fill some of the void. Households’ balance sheets have also strengthened in other ways. As long as the events in Europe don’t trigger another credit crunch in the US, at some point in the not too distant future household debt may be able to rise at least as fast as incomes.
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