Another financial record has just been broken, and this one is not the kind you brag about. The United States’ total consumer debt just smashed through another all-time high in January. The most recent report out of the Federal Reserve revealed that consumer borrowing rose by $17.05 billion in 2019‘s opening month. This latest increase stretched the category of total consumer borrowing up to a new record high of $4.03 trillion as the chart below details:
This compared to January of 2018‘s prior high of $3.84 trillion. It equates to an eyebrow raising 5.1 percent yearly increase. These figures do not even include mortgages and real estate debt. They only consider student loans, credit card debt, and car loans.
The breakdown was not so surprising. Credit card debt, also known as revolving credit, increased by $2.57 billion for January. This raised all credit card balances in the United States up to $1.06 trillion. Meanwhile, non-revolving credit that takes into account student loans and car loans grew by $14.47 billion for January. It followed another increase back in December to $14.42 billion.
When you add this to the mortgages to come up with total American household debt, this also reached a new record. The household debt rose to an all-time high of $13.54 trillion for 2018‘s final quarter. This figure amounted to another $869 billion more than the prior record amount of $12.68 trillion for the third quarter in 2008 (immediately following the Global Financial Crisis crash). It was 21.4 percent higher than the trough during the worst of the post financial crisis that was hit in 2013’s second quarter.
It is hard to imagine how you can call any of these discouraging statistics good news, yet news organizations are doing their level best to do so. Bloomberg stated that at least the data indicated American consumers are still borrowing, “with activity propelled by the strong labor market, higher wages, and tax cuts.” As if this were something to celebrate.
Yet this brings up a salient point. When Americans are working and earning significantly more, all the while reaping the rewards of the Trump tax cuts, then why are they finding it necessary to use their credit cards for purchases at all? To the contrary, the charges suggest an inability to cover the bases. More important still, what will the U.S. economy do as these credit cards reach their inevitable limits? Americans will have to repay the newfound debt at some point in time.
Bloomberg also mentioned that “the Fed’s patience on raising interest rates may encourage lending.” Isn’t that the entire idea behind a loose monetary policy? It certainly gives reasoning behind Powell’s now notorious Powell Pause. The Federal Reserve appears to have come to grips with the idea that raising interest rates to normalcy is impossible with Americans now having to service in excess of $4 trillion worth of debt. This of course says nothing of the over $22 trillion debt that the Federal government has to service.
Now it is worth noting that the monthly consumer credit report from the Federal Reserve does not factor in information on delinquencies. Yet the quarterly report disclosed that Americans are increasingly struggling to keep up with their payments. The Q4 report showed that credit cards moving into the category of “seriously delinquent” increased by a surprising five percent for the final quarter of 2018.
This rose from 4.8 percent during the third quarter. On top of this, the auto loan industry performance continues to “slowly worsen.” Delinquencies are especially deteriorating in the category of subprime borrowers.
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Bubbles like these consumer household debt ones can not simply continue to get bigger forever. The day of reckoning is swiftly arriving. Data on rising delinquencies speaks volumes about just how soon this might in fact be.
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