American households are borrowing again.

Household debt grew at a 3.2% annual rate in the second quarter. That was the highest growth rate since 2007.

This is an important shift. The biggest reason the economy has been so slow over the last five years is because households were working off debt built up over the last two decades. Since your spending is my income, money you put toward paying off debt rather than spending means less income for me, which means I can spend less, which means you earn less. It's a vicious spiral. 

Government debt grew a lot over the last five years. But it wasn't enough to offset the decline in private debt. Total debt – household plus government – as a percentage of GDP declined every year since 2008.

But just as household debt begins to grow again, government deficits are plunging, and government debt is growing at the slowest rate in more than a decade.

Falling government debt-to-GDP is enough to offset the rise in household debt. So total debt to GDP is still declining:

Source: Federal Reserve.

The financial crisis was caused by too much debt. The good news is that, six years later, we're not even close to going back to the old ways. America, as a whole, still hates debt. 

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