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US Household Debt Breaks Another Record

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The national debt has pushed above the $22 trillion mark, but it’s not just Uncle Sam borrowing himself into oblivion. US household debt climbed to a record $13.54 trillion in the fourth quarter of 2018, according to a report released by the Federal Reserve Bank of New York.

Total household debt (including mortgages) now stands $869 billion higher than the previous peak of $12.68 trillion in the third quarter of 2008 (right before the crash) and 21.4% above the post-financial-crisis trough reached in the second quarter of 2013.

Non-mortgage debt increased by $58 billion in the fourth quarter, with auto loans increasing by $9 billion, credit card balances going up by $26 billion, and student loan balances climbing by another $15 billion.

Not only are Americans saddled by more debt, they’re having an increasingly hard time making payments. For instance, the New York Fed said performance in the auto loan sector is “slowly worsening.”

Growing delinquencies among subprime borrowers are responsible for this deteriorating performance, and younger borrowers are struggling most acutely to afford their auto loans.”

Flows into serious delinquency for credit cards rose 5% in Q4, up from 4.8% in the third quarter.

Outstanding student loan debt stood at $1.46 trillion in the fourth quarter. A whopping 11.4% of aggregate student debt was 90+ days delinquent or in default in 2018 Q4. That represented a small improvement from the jump seen in the third quarter of 2018.

There were also some signs in the report that the US economy might be slowing down.

The number of credit inquiries within the past six months – an indicator of consumer credit demand – declined to the lowest level
seen in the history of the data. Meanwhile, account closings were at their highest level since 2010.

It’s pretty clear that the recent GDP growth has been driven by borrowing. The drop in demand for more credit could be a sign that American consumers are tapped out. This is not good news for an economy built on consumer spending.

There were also troubling signals in the housing market. We’ve been reporting on signs that the air is coming out of housing bubble. 2.0. The New York Fed provided yet another. Mortgage debt slipped for the first time in two years. Mortgage originations dropped by $44 billion.

One thing is clear – the Fed has managed to once again blow up a bubble economy built on a foundation debt. It did it with nearly a decade of easy money. But there are obvious cracks in that foundation. The question is how long can the whole thing hold together?

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