Another Month, Another Record for Consumer Debt

Another Month, Another Record for Consumer Debt from Schiff Gold

Americans continue to drive the economy along spending money they don’t have. Consumer debt increased yet again in July, setting another record, according to the latest data released by the Federal Reserve.

Total consumer debt surged $23.4 billion in July, driven by a huge jump in credit card balances. The big rise in consumer indebtedness took analysts by surprise. Bloomberg said the increase “exceeded all estimates” in a survey of economists. Overall, consumer debt increased by an annual rate of 6.8% after a 4% increase the previous month.

Total consumer debt in the US now stands at a record $4.123 trillion (seasonally adjusted).

The Fed consumer debt figures include credit card debt, student loans and auto loans, but do not factor in mortgage debt.

Revolving credit outstanding – primarily credit card balances – grew by $1o billion in July. That was the biggest jump in credit card debt since November 2017. Americans now owe some $1.o8 trillion on their credit cards.

Non-revolving credit, which includes auto and student loans grew by $13.3 billion.

Most mainstream pundits and analysts continue to spin the growth in American indebtedness as a positive for the economy. Here’s how Bloombergreported it.

The surge in borrowing indicates Americans, supported by higher wages, were feeling confident enough about their financial situation to continue borrowing and spending. The economy, beset by weakness in manufacturing, housing and capital investment, remains highly dependent on the US consumer to keep driving the expansion.”

But does massive credit card spending really mean consumers are confident? It could just as well mean they are tapped out and charging everyday purchases on plastic. In fact, the growth in consumer debt could just as well mean Americans are struggling to make ends meet. After all, a lot of people use their credit cards as an emergency fund.

And even if this is some kind of confidence-driven spending spree, it can’t go on forever. Credit cards have this inconvenient thing called a limit. And they have to be paid off at some point. At best, “confident” American consumers are borrowing money from their future. What happens when the future gets here?

Even Bloomberg conceded there is a possible economic downside to all of this debt.

At the same time, bigger credit-card statements may indicate households feel they are overextended and may become more tentative about spending.”

WolfStreet put it in simplest terms when the Q2 consumer debt number came out last month:

American consumers are not slackers. They are doing their collective job, propping up the US economy, and by extension the global economy, with money they don’t have.”

Meanwhile, bankruptcies are increasing. While still well-below Great Recession, analysts say there is an uptrend. According to data released by the American Bankruptcy Institute, US bankruptcy filings rose by 3% in July 2019 from July 2018.

As Peter Schiff noted in a podcast after the Q2 GDP number came out, this notion that the US economy is strong is “fake news.” Consumer spending increased by 4.3% and contributed nearly all of the GDP growth. Many of the headlines credited the American consumer with “rescuing the economy.”

The problem is if the consumer rescued the economy, who is going to rescue the consumer? Because if you look at where the consumer is getting that money, it’s from credit. Year-over-year, consumer debt has increased by 5%. So, what is driving consumer spending is debt.”

This is not a sustainable way to run an economy.

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Peter Schiff

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for more than twenty years, he joined Euro Pacific in 1996 and served as its President until December 2010, when he became CEO. An expert on money, economic theory, and international investing, he is a highly sought after speaker at conferences and symposia around the world. He served as an economic advisor to the 2008 Ron Paul presidential campaign and ran unsuccessfully for the U.S. Senate in Connecticut in 2010.