In 2021, consumer debt increased at the fastest rate in five years.
In December, American consumers added to their debt, capping off a year in which consumer debt increased at the quickest rate in five years.
The debt climbed by the most in 20 years. Despite this, Americans continue to add red ink to their ledgers at an alarming rate.
The most current Federal Reserve figures show that total consumer debt increased by $18.9 billion in December, representing a 5.1 per cent increase year on year. The total amount of consumer debt is currently $4.43 trillion.
Consumer debt estimates from the Federal Reserve include credit card debt, school loans, and vehicle loans but do not include home debt. Americans are about $15 trillion in debt when mortgages are factored in.
Unsecured credit — primarily credit card balances — increased by 2.4 per cent year on year in December. Americans added $2.1 billion to their credit card debt, bringing the total to a little under $1.04 trillion.
Non-revolving debt, including vehicle and student loans, increased by $16.8 billion, a 6% rise yearly. The total amount of non-revolving debt is currently $3.39 trillion.
The mainstream media frequently spins rising consumer debt as good news. According to the narrative, Americans believe the economy is robust and are willing to borrow money. On the other hand, heavy borrowing might be a symptom of consumer hardship. They may be turning to debt to make ends meet as the inflation freight train wreaks havoc on their finances.
During the epidemic's peak in 2020, most Americans kept their credit cards in their pockets and paid down their balances; this is typical consumer behaviour during a recession. When the epidemic began, credit card debt totalled more than $1 trillion. In 2020, they slipped below that threshold. As the recovery began, credit card balances increased slightly in February and March of last year but fell sharply in April when another batch of stimulus checks was sent. However, in May, Americans resumed their borrowing in earnest. Consumer debt has steadily increased since then.
The mainstream may be correct in believing that Americans are borrowing more because they are optimistic about the economy. However, it appears that increasing costs and the absence of stimulus checks are causing Americans to borrow more to buy things they can't afford. In reality, people are becoming increasingly concerned about inflation and its impact on the economy.
The Federal Reserve and the US government have created a post-pandemic "economic recovery" on debt and stimulus. It is based on customers' spending stimulus money borrowed and distributed by the federal government or racking up credit card debt on their own.
Meanwhile, rising costs have put a strain on Americans' budgets. Real income is decreasing.
The Fed is now threatening to cut off the cheap money tap. What are the chances of that working?
The short answer is no; this is one of the numerous reasons Peter Schiff believes the Fed will fail to deliver on its promises.
With interest rates rising, how can customers buried beneath more than $1 trillion in credit card debt pay their bills down? Minimum payments will climb as interest rates rise. Even just paying the interest on the outstanding debt will cost more. But that is terrible news for a country's economy that relies on individuals spending money on imported goods from other countries.
Americans can only borrow money because the Fed allows them to. It artificially keeps interest rates low so that consumers can pay the interest on all of the money they're borrowing. And it is this that is assisting in the creation of many of these service sector jobs that would not exist if Americans were not able to go deeper into debt.
As a result, rate rises will influence the overall economy. That's one of the arguments why the Fed is unlikely to tighten monetary policy further. It will weaken the economy's foundations.