Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

American Consumers Propping Up Economy With Money They Don’t Have

  by    0   0

Consumer debt is driving American economic growth.

Total outstanding consumer debt surged over $4.1 trillion in the second quarter of 2019, according to the latest data released by the Federal Reserve.

American indebtedness grew by 4.9 over the year, and the quarterly gain from Q1 to Q2 came in at $60 billion — the biggest second-quarter increase since Q2 2016.  Over the last 12 months, American consumers have piled on an additional $208 billion of debt.

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

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.” But much of that consumer spending is going on credit cards. As WolfStreet noted:

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.”

Revolving credit – primarily credit card debt –  increased at an annual rate of 5.3% in Q2. Americans currently owe $1.07 trillion on their plastic. According to WolfStreet, this was a record for a second quarter and was only topped by the “holiday shop-and-borrow” season in Q4 2018.

As WolfStreet notes, in some ways, the consumer debt picture looks better than it did in the prior peak before the 2008 crash. Factoring in inflation and population growth, American consumers have shed credit card debt. But there is what WolfStreet calls a “bifurcation.” Many credit card users pay off balances monthly. But there is a rotting foundation underneath that could collapse at any time.

Then there are the tapped-out consumers with multiple maxed-out credit cards, or with credit cards with large balances, and consumers with personal loans, payday loans, etc. And they’re paying a fortune in interest at double-digit rates because they don’t have the money to pay off those loans. They can barely make the minimum payments and get to the next paycheck. These are the folks who owe that $1 trillion. And this is why credit card debt curdles so quickly during a downturn. People with credit card debt have little wiggle room.”

Non-revolving credit, which is primarily student loans and auto loans, was up 4.8% on the year and now stand at just a tick under 3.01 trillion.

Total auto loans and leases outstanding for new and used vehicles were up 4.0% in Q2 to a record $1.17 trillion. This despite a 1.5% decline in new vehicle sales and tepid used vehicle sales. And as we reported earlier this year, auto loan delinquencies in the subprime market have already risen to levels approaching the Great Recession peak.

Student loans outstanding rose by 4.9% in Q2 compared to Q2 2018. Student debt now totals $1.61 trillion. Student loans outstanding have increased by 125% in the decade since Q2 2009. Meanwhile, student enrollment in colleges and universities has dropped 7% between 2010 and 2017, according to the National Center for Educational Statistics.

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

As WolfStreet pointed out, every penny of this borrowing is reflected in annualized consumer spending, which was up by about 1.4%.

Consumer spending accounts for nearly 70% of the economy, as measured by GDP. Everyone and everything depends on these consumers to consume, which is their function. That’s why they’re called ‘consumers,’ and not ‘people.'”

Yup. The economy is “great.” Until those credit cards max out.

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Gold Serving as a Lifeline for Indians During Credit Crunch

Gold has become a lifeline for Indians in the midst of a severe credit crunch. When the state-run lender refused to extend Babasaheb Mandlik credit, he used his wife’s gold jewelry as collateral for a loan in order to buy cotton seeds before the summer sowing season window closed.

READ MORE →

Uncle Sam Is Spending Like We’re In Recession; What Happens When We Really Are?

Last week we got the updated federal budget deficit numbers. At $867 billion, the 2019 fiscal year budget shortfall has already eclipsed last year’s deficit of $779 billion. The out of control spending and spiraling deficits are concerning enough on their own terms, but they become absolutely horrifying when you consider that these budget shortfalls […]

READ MORE →

Yield Curve Inverts Flashing Recession Warning; Stocks Plunge

The yield on the 10-year Treasury fell below the yield on the 2-year for the first time in 12 years, stoking recession fears and tanking stock markets. Yield curve inversions have preceded all nine recessions since 1955.  This was the first time the 10-year Treasury yield has dropped below the 2-year yield since June 2007 […]

READ MORE →

China Adds 10 More Tons of Gold to Its Hoard

the country of china shown on a globeChina bought gold for the eighth straight month in July, adding another 10 tons to its rapidly growing hoard. The recent purchases boosted the People’s Bank of China’s gold reserves to 62.26 million ounces – about 1, 945 tons.  China has added about 94 tons of gold to its stash over the past eight months.

READ MORE →

The Fed Has the US Economy on Life Support

The Federal Reserve has the US economy on monetary life support and Daily Reckoning managing editor Brian Maher says it will never again breathe on its own. As hedge fund manager Kyle Bass put it, the economy is trapped within the inescapable tractor beam of zero percent interest rates.

READ MORE →

Comments are closed.

Call Now