But at present, in a very uncertain situation, we all tend to move away from it, and even to distrust it because it would tie our hands. Does it mean that we also abandon predictability? I will here come to my second part, and focus the art/science nexus on the reactivity/predictability trade-off, if you allow me to assimilate the former to intuition and art, and the latter to rationality and science. II. Four possible lights for a new predictability Should art now play a bigger role? At a minimum we should acknowledge the need for modesty, agility and nimbleness. But this is not an argument for returning to the secrecy and unpredictability that characterized central banking until the 1990s. There is no room for what Karl Brunner ironically described forty years ago as “thriving on a pervasive impression that Central Banking is an esoteric art, [whose] esoteric nature is revealed by an inherent impossibility to articulate its insights in explicit and intelligible words and sentences.”vii Instead, we should aim to build a “new predictability”, a different one suited for uncertain times. Let me propose, with humility, four possible lights in approaching it. II.A.
As a result, the household sector’s financial condition today is in unusually good shape for this point in the economic cycle. In relative terms, household indebtedness is low, and—thanks in part to low interest rates—debt service burdens relative to household income have fallen to levels not seen since at least the early 1980s. As we will show in today’s presentation, compared to 2008, a greater proportion of overall debt today is now held by older households that have higher and more stable incomes and more experience as borrowers, on average. Consequently, a much larger proportion of debt is currently held by borrowers with higher credit scores. The resulting higher overall debt quality is reflected in historically low overall delinquency rates. Transition rates into new delinquency are below the levels of the early 2000s, and foreclosure and bankruptcy rates in 2016 are the lowest since our data series began in 1999. Notwithstanding this overall rosy picture, the improvement in aggregate debt quality and performance conceals important underlying changes in debt holdings that could be consequential, with implications for the housing market and for consumer spending over the longer term. While older borrowers hold more debt of all types, there has been a significant shift among younger people toward student debt and away from mortgage and other debt. Student debt has increased more than fivefold over the past 14 years, with more young adults taking out loans and borrowing larger average amounts. And, while debt delinquency rates overall have fallen, those for student debt have remained elevated.