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Total Household Debt Hit Record $13 Trillion in 2017

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Passage of a GOP budget that added $300 billion in new spending has focused plenty of attention on surging federal government debt over the last week or so. But Uncle Sam isn’t the only one running up those credit cards. Everyday Americans are also piling on the debt.

Total household debt soared to a record $13 trillion dollars in 2017, according to the latest data released by the Federal Reserve Bank of New York’s Center for Microeconomic Data.

Total household debt increased by $193 billion to $13.15 trillion in the fourth quarter of 2017. The report marked the fifth consecutive year of positive annual household debt growth. American indebtedness has eclipsed levels seen on the eve of the Great Recession.

Household debt rose in every category in Q4 2017.

Americans are burning up those credit cards. Revolving debt grew by $26 billion in the fourth quarter alone, a 3.2% increase. Americans have run up an $834 billion credit card tab. Meanwhile, flows into serious delinquency have increased steadily since the third quarter of 2016.

Mortgage debt grew by $139 billion, a 1.6% increase. Housing loans make up the largest portion of American household debt. As the debt grows, the creditworthiness of borrowers is dropping. The median credit score for those taking out new mortgages decreased slightly in Q4 2017.

Auto loan balances continued a steady rise that started in 2011. Currently, Americans owe $1.22 trillion on vehicle loans. Last year saw the highest annual auto loan origination volume ever observed in the New York Fed data. As of Dec. 31, 2017, 4.1% of auto loan balances were 90 or more days delinquent.

Student loan debt stands at a staggering $1.38 trillion. Outstanding student loan balances increased by 1.5% in Q4 2014 and delinquency levels remain high. About 11% of aggregate student loan debt was 90+ days delinquent or in default in the last quarter of 2017. As we reported last year, student loan debt is one of the biggest factors driving a growing trend of millennials struggling to transition into adulthood.

Growing debt level should come as no surprise. The Federal Reserve has held interest rates unnaturally low for nearly a decade. This has pumped up what US Global Investors CEO Frank Holmes called “the mother of all bubbles.”

The skyrocketing levels of debt also tell us something about the “economic recovery” since the 2008 financial crisis. It is essentially a fake recovery built on debt. This is not just an American phenomenon. As we reported last month, global debt is growing three times faster than global wealth.

Net wealth = Assets – Debt

So, you really can’t talk about wealth without talking about debt. While it may appear the economy is growing and Americans are getting wealthier because they have more stuff, it’s an illusion. Debt is holding everything up and that is not a firm foundation.

Increasing debt levels will likely temper future spending and could put a significant drag on the economy. This will become especially acute if the Federal Reserve continues pushing interest rates up. Rising rates will increase payments on outstanding debt. That could be the pin that pops the debt bubble.

Last summer, Holmes warned that the debt bubble will eventually burst. There are certainly signs the pop could be imminent. He recommended investors should buy gold and called the yellow metal’s long-term investment case “bright.” He said if and when the mother of all bubbles pops, it could potentially spell trouble for the investor who hasn’t adequately prepared with some allocation in a safe haven.

Another crisis could be in the works. Savvy investors and savers might very well see this as a sign to allocate a part of their portfolios in ‘safe haven’ assets that have historically held their value in times of economic contraction. Gold is one such asset that’s been a good store of value in such times.”

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