Consumer Debt Grew at Record Rate in June

After posting a 10.4% increase in May, consumer debt continued to expand, growing by a record rate in June.

Consumer credit grew by $37.69 billion in June, according to the latest data from the Federal Reserve. That represents a 10.6% increase. The Fed also revised the May number up from $35.3 billion to $36.6 billion.

The big expansion in consumer credit was far above the 20.8 billion expected.

Americans collectively owe $4.32 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, Americans are buried under nearly $15 trillion in debt.

Revolving credit, primarily made up of credit card debt rose by $17.9 billion in June, a whopping 22% increase. Americans now owe $992.2 billion in credit card debt.

Consumer spending made up over 70% of GDP in the second quarter. It appears as stimulus checks ran out, Americans turned to plastic to continue their spending spree. As Reuters reported it, “The surge in June could explain the sustained robustness in consumer spending during last quarter, even as the flow of stimulus money from the government ebbed.”

Through the pandemic, Americans, by and large, kept their credit cards in their wallets and paid down balances. This is typical consumer behavior during an economic downturn. Credit card balances were over $1 trillion when the pandemic began. We saw small upticks in credit card balances in February and March but a sharp drop in April as stimulus checks rolled out. The 28-billion-plus increase in May and June eclipsed anything we’ve seen since the pandemic began.

Non-revolving credit, including auto and student loans, grew by $19.8 billion, a 7.2% increase. Even as credit card debt dropped during the pandemic, nonrevolving credit continued to expand through last year and into 2021.  Americans own more than $3.3 trillion in non-revolving debt.

The Federal Reserve and the US government have built a post-pandemic “economic recovery” on stimulus and debt. It is predicated on consumers spending stimulus money borrowed and handed out by the federal government or running up their own credit cards. As Peter Schiff noted in his podcast, were it not for the Fed’s easy-money policy, consumers couldn’t drive this borrow and spend economy.

Obviously, if consumers were not able to borrow all this money, then they couldn’t have spent. They couldn’t have bought all this stuff but for their ability to borrow money. And the only reason they can borrow money is because the Fed is supplying it. The Fed is making all this money available. It’s holding interest rates artificially low so that people can pay the interest on all this money that they’re borrowing. And that is what is helping to create a lot of these service sector jobs that would not exist but for the ability of Americans to go deeper into debt.”

This is precisely why Schiff says the markets are trading on fantasy if they believe the central bank will actually tighten monetary policy. The bubble economy depends on air supplied by the Fed.

If the Fed stops supplying that air, the whole thing is going to deflate.”