Americans Have More Debt Than Ever – and It Is Creating an Economic trap
Americans have more debt than ever — and it’s creating an economic trap
BY: Pedro Nicolaci da Costa of Business Insider –Direct Link to Article
October 22, 2017
- An International Monetary Fund report finds that high levels of household debt deepen and prolong recessions.
- US household debt is at pre-Great Recession levels.
- Household debt jumped by over $500 billion in the second quarter to $12.84 trillion.
A scary little statistic is buried beneath the US economy’s apparent stability: Consumer-debt levels are now well above those seen before the Great Recession.
As of June, US households were more than half a trillion dollars deeper in debt than they were a year earlier, according to the latest figures from the Federal Reserve. Total household debt now totals $12.84 trillion — also, incidentally, about two-thirds of gross domestic product.
The proportion of overall debt that was delinquent in the second quarter was steady at 4.8%, but the New York Fed warned over transitions of credit-card balances into delinquency, which “ticked up notably.”
Here’s the thing: Unlike government debt, which can be rolled over continuously, consumer loans actually need to be paid back. And despite low official interest rates from the Federal Reserve, those often do not trickle down to financial products like credit cards and small-business loans.
Michael Lebowitz, the cofounder of the market-analysis firm 720 Global, says the US economy is already dangerously close to the edge.
“Most consumers, especially those in the bottom 80%, are tapped out,” he told Business Insider. “They have borrowed about as much as they can. Servicing this debt will act like a wet towel on economic growth for years to come. Until wages can grow faster than our true costs of inflation, this problem will only worsen.”
