Americans are grappling with unprecedented levels of debt, leaving economists and financial experts concerned for the country’s fiscal health. According to the Federal Reserve Bank of New York, total household debt climbed to a new high of $17.06 trillion in the second quarter of 2023. This dire situation could worsen as Americans juggle high-interest rates, inflation, and the end of the student loan moratorium. It’s a scenario that many attribute to mismanagement on the federal level and one that demands attention.
Economists like Peter Earle from the American Institute for Economic Research highlight that this financial burden isn’t accidental. “The initial response to the pandemic, which prominently included the Fed setting policy (interest) rates at essentially zero for several years, made the amount of credit and the price of taking on debt extraordinarily cheap,” Earle said. The debt crisis we now face results from artificially low-interest rates and economic policies that might have been well-intentioned but have caused more harm than good.
Credit card balances are now over $1 trillion for the first time ever.
Just like 2008, everyone was paying their mortgages until they couldn't 🚨🚨🚨
Are we on the verge of a debt crisis with rising rates? pic.twitter.com/ymjLE98CIa
— Wall Street Silver (@WallStreetSilv) August 9, 2023
But now the bills are coming due. Interest rates have faced upward pressure, with the Federal Reserve hiking the federal funds rate eleven times since March 2022. Mortgage rates surged to a 20-year high, reaching 7.18% at the end of August. The Fed has hinted at further hikes if market conditions don’t improve, leaving families who have taken on debt struggling to pay it back.
Meanwhile, the cost of living keeps rising. Alia Dudum, a money expert at LendingClub, mentioned that “61% of U.S. consumers live paycheck to paycheck.” This percentage includes those in lower income brackets and a rising number among those earning more than $100,000 annually. The increasing costs are even hitting those who believed they were financially stable. Dudum notes that many Americans use credit cards “as a crutch instead of a tool,” adding to the crisis.
Surging credit card debt and plunging savings prove the #Fed lost the #inflation fight. To win, the Fed must reduce consumer spending and increase savings. The rate hikes only helped lower the #CPI because they strengthened the dollar. A weakening dollar will reverse those gains.
— Peter Schiff (@PeterSchiff) August 14, 2023
This picture is bleak for younger Americans who face the resumption of student loan payments. “With one trillion in debt out there and having not had to pay for over three years, tens of millions of Americans will suddenly have to come up with what amounts to another car payment each month,” Earle stated. For many young people, the cost of education might quickly become an insurmountable obstacle, taking a severe toll on an entire generation’s financial stability.
Additionally, auto loans and delinquencies are on the rise. Prices have increased for new cars, making it more challenging to afford a vehicle. This situation will likely strain household finances further, particularly when combined with existing debts like student loans and credit card balances.
And what about the government’s role? Some experts have critiqued the Biden administration’s economic policies as unhelpful. Michael Faulkender, chief economist for the Center for American Prosperity, said, “For these households, Bidenomics is a complete bust.”
While some Americans might quickly blame individual choices, the overall trend suggests a more significant systemic issue. It’s a crisis that calls for responsible personal financial management and demands efficient and prudent policy decisions from the government. If both fail to happen, the American dream could turn into a nightmare for many — sooner rather than later.