• Household debt reached a new high of $17.5 trillion in the fourth quarter of 2023, with credit card debt and mortgages contributing the most to the increase.
• Americans are turning to debt to cover their expenses as rising prices and high interest rates hit consumers hard.
• “When you look at the actual prices of goods on store shelves, as opposed to the static and sterile price index concocted in Washington, D.C., it becomes completely clear why Americans are going deeper and deeper into debt. ,” said Peter Earle, an economist at the American Institute. Economic Research told the Daily Caller News Foundation.

The amount of personal debt held collectively by Americans reached a new high in the fourth quarter of 2023, as households struggle to pay everyday expenses amid rising prices and high interest rates.

Household debt increased by $212 billion in the fourth quarter, bringing the total to $17.5 trillion. according to to the Federal Reserve Bank of New York. As inflation and high interest rates increasingly burden consumers, the rise in debt is due to Americans needing to finance their everyday needs, and the debt could worsen as it piles up. Yes, experts told the Daily Caller News Foundation. (Related: Wall Street floods D.C. with lobbyists amid Biden-controlled bank crackdown)

“Americans are taking on record levels of debt as purchasing power declines rapidly,” American Institute for Economic Research economist Peter Earle told DCNF. “Despite the decline in inflation, prices are still rising. And by virtually every measure, U.S. prices are still rising faster than before the pandemic. The indexes indicate year-over-year inflation of 3% to 4%, but they are a weighted average of the prices of thousands of products.”

Under President Joe Biden, inflation peaked at 9.1% in June 2022, but has slowed to 3.3% as of December. according to to the Federal Reserve Bank of St. Louis (FRED). Prices have risen a total of 17.6% since Biden first took office in January 2021, and real wages, which take into account hours worked per week, have fallen by about 4% in that time.

Americans' credit card debt increased by $50 billion in the fourth quarter and $143 billion over the year, to a total of $1.129 trillion, according to the New York Fed. Credit card debt grew second only to mortgage debt, increasing by $112 billion in the quarter to about $12.3 trillion, accounting for the majority of total debt held.

“But by taking on credit card debt to pay for groceries and fuel, Americans are trading a series of price increases for higher, and perhaps more harmful, prices,” Earle told DCNF. told. “Credit card interest rates are the price you pay for borrowing money. And their prices are rising too, now approaching 23% in most cases, and are likely to cause even greater financial pain in the future.” .”

The average interest rate on credit cards has risen sharply recently, rising from 14.56% in February 2022 to 21.47% as of November 2023. according to To Fred.

Jay Kedia, a researcher at the Cato Institute's Center on Finance and Financial Alternatives, said, “Large consumer purchases financed with debt, such as homes and cars, are actually declining because rising interest rates are making borrowing more expensive. I'm doing it,” he said. DCNF. “As a result, consumers who are already locked into debt contracts are likely to take on more debt due to the increased interest payments they face. Figures vary, but around 10% of mortgages are variable rate. of consumers will see higher interest payments due to higher mortgage rates.”

😲 Credit card balances increase by $50 billion to $1.13 trillion

Household debt reached $17.5 trillion in the fourth quarter.Increase in delinquency rates
According to the latest statistics, total household debt increased by $212 billion, reaching $17.5 trillion in the fourth quarter of 2023. pic.twitter.com/0YujhELth9

— Truflation (@truflation) February 8, 2024

Interest rates face upward pressure from increases in the federal funds rate, with the Federal Reserve setting the federal funds rate in the range of 5.25% to 5.50%, the highest level since 2001, to combat high inflation. are doing. As a result, the average interest rate on a 30-year mortgage has jumped from a recent low of about 2.6% in early 2021 to nearly 8% in October 2023. according to To Fred.

“The same goes for credit card debt holders, whose balances can change from year to year. [annual percentage rate]” Kedia told DCNF. “Consumers are not budgeting for such a rapid increase in their monthly debt payments, and many consumers may be in default, which is an alarming situation for the economy.” This is clear from the delinquency data. However, new borrowers do not appear to be borrowing beyond their means, raising the possibility of a devastating effect on the economy as happened in 2008. is low.”

According to the New York Fed, credit card debt increased the most among serious delinquencies, or delinquencies that have not been paid for at least 90 days past their due date, from 4.01% in the fourth quarter of 2022 to 6.36% one year from now. It became. . The serious delinquency rate for all forms of debt rose from just 1.03% a year ago to 1.42% in the fourth quarter of 2023.

“Federal debt is fundamentally different than consumer debt and requires a completely different discussion,” Kedia told DCNF. “Concerns about such debt are primarily long-term and confidence in the federal government's ability to repay bondholders. Two bad things could happen (albeit with very low probabilities): .It's either the US government defaults on its debts or it prints money to pay off its debts.The first case is pretty obvious—The United States declares bankruptcy. The second would mean a rapid devaluation of the dollar and severe inflation. ”

The U.S. government also has more debt than ever before, about $34.2 trillion. according to to the Ministry of Finance. The fourth quarter of 2023 alone added more than $800 billion to the deficit.

“The interest rates on large government debts are likely to rise because the likelihood of paying them off becomes increasingly questionable,” Earl told DCNF. “That could push interest rates up broadly and generally. Also, as the debt mountain swells, governments could be forced to resort to tax increases or expansionary monetary policy to make ends meet, both of which could push the population higher. It is harmful to

Interest payments on the federal debt are expected to rise from $659 billion in fiscal year 2023 to $870 billion in fiscal year 2024, taking more and more money away from government programs and tax cuts. Interest payments are expected to exceed federal spending on defense and Medicare next year.

“If you look at the actual prices of products on store shelves, as opposed to the static and sterile price indexes fabricated in Washington, D.C., you can see that Americans are going deeper and deeper into debt,” Earle told DCNF. The reason becomes completely clear.”

The White House declined to comment on the record to DCNF.

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