Americans continue to pile up debt, adding to numbers that were already at record levels.
US consumer debt increased by $20.1 billion in August, pushing total consumer credit to a record $3.94 trillion, according to the latest numbers from the Federal Reserve. That comes to a 6.2% annual growth rate.
These figures include credit card debt, student loans and auto loans, but do not factor in mortgage debt.
Americans are still burning up those credit cards. Revolving credit balances swelled by another $4.8 billion in August after a $1.4 billion increase in July. Americans’ credit card balances are growing by an annual rate of 5.6% and currently stand at just over $1 trillion.
Non-revolving credit, which includes auto loans and student loans, grew by $15.3 billion (6.4%) in August after a $15.2 billion increase in July. Americans have piled up nearly $2.9 trillion in non-revolving debt.
The mainstream spins increasing American indebtedness with a decidedly positive tone. Bloomberg proclaimed, “Steady hiring and tax cuts have helped households improve their finances, though wage growth has remained moderate throughout the economic expansion.” According to MarketWatch, “Fed Chairman Jerome Powell said late last month that household balance sheets are in good shape,” and, “Economists expect consumer spending to add to economic growth in the third quarter.”
When you cut through all the hyperbole, the real story is the American economy is built on debt. Yes, Americans are still buying stuff. But they are putting it on plastic. At some point, they will have to pay the piper. And no matter what Jerome Powell says, this is not good news in an environment of rapidly rising interest rates.
Peter Schiff dug down to the crux of the matter in a recent podcast. He noted that wages are not growing as fast as other prices. Wages aren’t even keeping pace with the Consumer Price Index, which likely understates the true rate of price growth. Americans aren’t borrowing billions of dollars because they are in great financial shape.
“Clearly, their jobs are not adequate to cover the cost of living. That’s why they’re having to borrow so much money to make ends meet. And of course, the cost of borrowing that money is going up and it’s going to continue to rise.”
And of course, the cost of borrowing is also going up for the federal government. As we reported last week, the feds are in a massive debt spiral of their own. Corporate debt also stands at record levels. As Peter put it, the economy is a bubble and the air filling that bubble is cheap money.
“The bottom line is Americans are too broke to afford those higher rates. It’s everybody. It’s individual households, it’s corporations, it’s the government. And not just the federal government, but local governments and state governments. Everybody loaded up on debt when interest rates were low. People say, ‘I’ll take advantage of this. You’re a fool if you don’t go out and borrow money. Look how cheap it is.’ … So, we’ve built this so-called strong economy on a foundation of cheap money. So, if the economy is strong because interest rates are super low, and if interest rates go up, well now the economy can no longer be strong because that shaky foundation you built the economy on collapses and the whole house of cards comes tumbling down with it.”
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