Some Americans are already showing signs of maxing out on debt

• Rising US household net worth and lower debt levels relative to income mask sharp underlying inequalities
• "Balance sheets have become more fragile for the lower part of the income distribution," Deutsche Bank says.
• All parts of the income distribution have seen their net worth-to-income ratio decrease - except for the wealthiest 10%

---

How can the following two things be true at the same time?

1. Household debt - in aggregate - is above levels last seen just before the economic calamity that hit America a decade ago.
2. Everything is fine.

That's a line you'll hear from Wall Street economists, who are noticing the high debt but also telling their clients it is not going to hurt.

The explanation is wealthy people.

US economic growth has become so skewed towards the wealthiest households that data showing healthy consumer balance sheets mask underlying troubles facing the middle-class and poor Americans.

Deutsche Bank's economists tried to wrestle with this issue in a recent note. They note that, overall, things look okay - households are earning enough to pay back debt that now totals $12.84 trillion - about two-thirds of gross domestic product.

But, that big picture is skewed by the booming incomes of the wealthy, and "underneath the surface, there may be incipient cracks forming," the bank's economists say.

"Some measures of income growth have slowed; the saving rate has fallen to near record-low-levels; measures of consumer credit demand and credit growth have weakened, and balance sheets have become more fragile for the lower part of the income distribution."

The rich will be fine

Since the crisis, the economy has recovered at a slow but steady pace, allowing the unemployment rate to fall sharply to 4.4% from a peak of 10% during the Great Recession, which lasted from December 2007 to the summer of 2009. The expansion has helped some Americans bolster their finances, but that progress is highly uneven.

In fact, the median net-worth-to-income ratio for all households has fallen since before the crisis, Deutsche said. That's probably explained by a loss in home values during the crisis.

But, "Strikingly, all parts of the income distribution have seen their net worth to income ratio decrease except for the top 10%, indicating that the record high net worth to income ratios noted previously are driven primarily by the upper portion of the income distribution," the bank's economists say.

"Despite most households reducing their debt loads, they actually may be in a more precarious situation as they have lost more out of their buffer stock of assets."

Another way to visualize America's economic divide is looking at the ratio between household liabilities and assets.

- The median household overall has only seen a slight increase in leverage since 2007, rising from 0.3 to 0.36.

- The bottom of the distribution has increased leverage pretty dramatically, rising almost 50% from 0.31 to 0.45.

- The second poorest quintile has boosted leverage by about 10%.

- The rest of the distribution saw much smaller increases in leverage, or even outright deleveraging at the top end.

Still, Deutsche Bank does not believe this fragility among the lower-income brackets is sufficient to offset financial gains at the top end of the income latter, meaning US consumer spending as a whole, which accounts for more than two-thirds of economic activity, will remain steady, if unspectacular.

This means economic growth should be able to sustain its recent 2% pace. Plus, rich people spend more money.

"The aggregate household balance sheet is solid. But because these measures are essentially means (averages), they are skewed by the upper end of the income distribution and may not accurately reflect developments for a large fraction of the population," Deutsche notes.

In other words, the rich will be fine.