American consumers continued to pile on debt in February, but the pace of borrowing slowed significantly, another sign the economy could be heading toward a recession.
Overall, consumer debt grew by $15.3 billion in February, a 3.8% annual increase, according to the latest data from the Federal Reserve. That compares with an upwardly revised 19.5 billion increase in January. Americans now owe a record $4.82 trillion in consumer debt.
The Federal Reserve consumer debt figures include credit card debt, student loans, and auto loans, but do not factor in mortgage debt. When you include mortgages, US households are buried under more than $16.9 trillion in debt. Household debt charted the biggest increase in two decades in the fourth quarter of 2022.
Credit card debt grew at a much slower pace in February, in line with the drop in retail sales. Lower fuel and energy prices gave consumers some relief, even as price inflation remains elevated. As Forbes reported in February, retail sales that month told a “story of consumers leaning into value and curtailed spending.” The borrowing data confirms this.
Revolving debt, primarily reflecting credit card borrowing increased by $5 billion in February, a 3.8% increase. In absolute terms, it was the smallest increase in revolving credit since April 2021. But credit card borrowing still remains slightly higher than the prepandemic average even with higher interest rates as Americans continue to cope with rapidly increasing prices.
To put the numbers into perspective, the annual increase in 2019, prior to the pandemic, was 3.6%. It’s pretty clear that Americans are still heavily relying on credit cards to make ends meet. Bloomberg reported, “Still, many Americans are leaning on credit cards to keep up with rising prices. A Census Bureau survey in early March showed about a third of Americans said they used credit cards or loans to meet their spending needs.”
Americans now owe a record $1.22 trillion in revolving debt. The bigger problem is the double whammy of rising debt and rising interest rates.
Average credit card interest rates eclipsed the record high of 17.87% months ago. The average annual percentage rate (APR) currently stands at 20.11%. NBC News revealed just the impact of rising interest rates on indebted consumers.
Bankrate data shows it would take 16 years for someone to pay off the current average credit card balance of $5,474 by making the minimum payments at 19.2%. At that point, they would have shelled out $7,365 in interest alone.”
Given that the CPI is still closer to last year’s high than it is to the Fed’s 2% target, the central bank still needs to raise rates higher to slay price inflation. This is going to be difficult given the amount of debt piled up not only by consumers but also governments and corporations. As economist Daniel Lacalle put it, rising interest rates are on a collision course with a wall of debt.
People are already struggling to pay the bill. According to a Moody’s Analytics analysis of Equifax data, nearly 25 million people are behind on credit card, auto loan, or personal loan payments. We haven’t seen delinquency levels like this since 2009.
The growth of non-revolving credit has cratered in the last three months. This debt includes auto loans, student loans, and borrowing for other big-ticket items.
Revolving credit grew by just $10.3 billion in February, a 3.4% increase. This was up from the meager 1.7% increase in December and the 2.2% increase in January, but it remains below the average growth of 5% in recent years.
The plunge in non-revolving credit indicates that consumers have cut back spending on big-ticket items. That could signal that the economy is slowing under the weight of high interest rates.
And now we’re seeing a similar slowdown in credit card debt. Does this indicate Americans are getting close to the end of their ropes?
The American economy depends on consumers spending money. They relied on plastic to make ends meet as price inflation blazed through the economy. Prices are still going up, but a lot of people have to be getting close to their borrowing limit.
So, what happens when consumers max out those credit cards? How will they make ends meet? How will it impact an economy that relies on borrowing and spending to limp along? And how will the Fed slay price inflation without popping the massive debt bubble?
Mainstream pundits and policy analysts don’t seem to be asking these questions. They probably should.
About the Author
Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It’s Your Dime interview series. View all posts by Michael Maharrey. Article cross-posted from Schiff Gold.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
