Monday, April 11, 2022

Consumer Debt in America - The Pain That Lies Ahead

In a recent posting, I looked at comments by one of the world's top central bankers, Agustin Carstens of the Bank for International Settlements (BIS) on the inflationary ecosystem that has been developing in the global economy.  In this posting, we'll look at which people will suffer the most from the implementation of central bank monetary policies to control this pervasive economic issue that has seemingly surprised many central bankers.


In the Federal Reserve's latest G.19 Consumer Credit report dated April 7, 2022 with data current to the end of February 2022, we see some very worrying issues.  The change (growth) of consumer credit on an annual basis is as follows:


Total - 11.3 percent


Revolving credit - 20.7 percent


Non-revolving credit - 8.4 percent

Here is a table showing the details:

The total annual flow rate of consumer credit rose to $501.8 billion and total outstanding consumer credit reached $4.4827 trillion.


Fortunately, at least so far, for consumers, interest rates on new car loans, credit cards and personal loans still remain tame as shown here:


Let's look at some charts showing the data going back to 2002.  Here is a chart showing the annual percent change of total consumer credit:



At 11.3 percent, February 2022's consumer credit annual growth rate is the highest that it has been in two decades, surpassing the previous high of 10.88 percent in July 2011.


Here is a chart showing the annual percent change in revolving credit:



At 20.7 percent, February 2022's revolving credit annual growth rate is just below the 23.85 percent growth rate in November 2021, the highest growth rate over the past two decades with the second highest growth rate of 21.57 percent occurring in June 2021. 


Here is a chart showing how total consumer credit owing has reached a new high:


Now, let's look at the other side of the coin; consumer savings.  Here is a chart from FRED showing how the personal savings rate rose substantially during the pandemic recession but has fallen back to pre-COVID recession levels (or even slightly lower than just prior to the last recession):


Given that the economy relies on very heavily on consumer spending as shown here: has to wonder what will happen to the economy once consumers figure out that they have to cut back on spending because the interest owing on their debt keeps rising along with the cost of goods and services.  We could be setting ourselves up for a very painful, cat food-based future.

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