PEOPLE earn income from a variety of sources. In the United States, almost $1 trillion of household income comes from the interest on assets Americans have accumulated over time, while about $180 billion is paid out in interest payments. Since the peak in mid-2008, the American household sector’s net interest income has declined by about $380 billion—equivalent to 2.5% of GDP. The decline roughly coincides with the collapse in interest rates since the end of 2008:

Monetary policy is at least partly to blame for this sharp reduction in net personal interest income, although the heightened desire among households and firms to squirrel away savings has also played a role. It cannot be attributed to any significant decline in the stock of interest-bearing assets held by households, however:

A longer view of history shows that changes in the flow of net personal interest income are tightly related to changes in the total flow of personal income:

Presumably, an increase in interest income could flow through to total personal income and lead to a more robust recovery. That having been said, it is unlikely that higher interest rates would have a positive impact right now. In fact, central bank action to raise the cost of credit could very well decelerate the growth in new borrowing even beyond what has occurred since 2007and make the recovery even more sluggish. Moreover, net interest income has been declining in relative importance since the late 1980s: