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Household Debt Drops for 12th Straight Quarter

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By Steve Goldstein

Household debt declined by a seasonally adjusted annual rate of 0.6%, dragged lower by a 2.4% decline in mortgage debt as consumers took out fewer mortgages, paid off or had debts forgiven, the Federal Reserve reported in its voluminous flow-of-funds report. Consumer credit outside mortgages rose by 3.4%.

Owners had 38.6% of the equity in their houses—unchanged from the first quarter but well below the 49.5% of 2007 as the housing market began to tumble. Household real estate was worth $16.18 trillion, a 0.4% dip from the first quarter but about 29% lower than the peak in the fourth quarter of 2006.

Businesses outside the financial sector expanded their credit at a 4% annualized rate. State and local governments borrowed 3.2% less, while the federal government—which doesn’t face balanced-budget rules that local authorities encounter—expanded their borrowing by 8.6% annualized

Total nonfinancial sector borrowing rose by 3% to $36.52 trillion.

The financial sector also continued to deleverage, borrowing 7.8% less in the 10th straight negative quarter.

The corporate sector continued to stockpile cash, reaching a record $2.05 trillion at the end of the second quarter, up from $1.96 trillion at the end of the first quarter and as little as $1.4 trillion in 2008.

Household and nonprofit organization net worth was $58.46 trillion, a small $149 billion reduction from the first quarter but well off the $65.8 trillion peak from the second quarter of 2007.

Steve Goldstein is MarketWatch’s Washington bureau chief.

For more information, please visit www.marketwatch.com .

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