Debt piling up across the United States, from the federal government to the average consumer

The US government debt ceiling has been at the forefront of financial media for the past few weeks. Now that it has been resolved (sort of), investors are turning their attention to household debt and if there is a ceiling that will make itself apparent at some point in the near future – ideally not in a GFC styled reveal.

The US government debt ceiling has been at the forefront of financial media for the past few weeks. Now that it has been resolved (sort of), investors are turning their attention to household debt and if there is a ceiling that will make itself apparent at some point in the near future – ideally not in a GFC styled reveal.

Only 5 out of the last 50 years have been a surplus for the American budget, with the most recent year being 2001. Since then, the US federal government has averaged a deficit of almost US$1 trillion every year, which has left the balance at US$31.4 trillion – nearly triple what it was in 2009.

Every time the debt ceiling approaches, disruption ensues, which has involved government shutdowns and the fear of economic collapse – while ‘negotiations’ take place that all parties involved ultimately have to agree on. Since 1960, Congress has increased the debt ceiling 78 times – 79 including last fortnight’s agreement.

The deal stuck between President Biden and the Republicans suspends the debt ceiling for two years, enough time to get through the next election, while trimming some government expenditures.

Now that that big ugly elephant has been temporarily hidden in plain sight, it’s time to take a look at another gigantic problem standing awkwardly in the corner of the room at a party with an empty drink in hand.

Household debt in America rose by US$148 billion in the first quarter of 2023 to reach a whopping US$17.05 trillion. US$121 billion of this jump was attributable to mortgage balances, which now stand at US$12.04 trillion. Balances on home equity lines of credit (HELOC) increased by US$3 billion, the fourth consecutive quarterly increase following a nearly 13 year declining trend; the outstanding HELOC balance stands at US$339 billion.

With rising rates biting into people’s cash flows, and inflation eroding their purchasing power at the same time, credit cards are becoming the weapon of choice in the war against settling for anything less than gluttony laden consumerism and exorbitant asset ownership. It’s a one in the chamber style battle that has seen record high credit card debt levels of US$986 billion, 17% higher than one year ago.

The typical trend of credit card balances being reduced during the first quarter of the year, which has been in place since the New York Fed started tracking these figures in 2003, was bucked at the start of 2023, with the category of debt that is characterised by some of the most toxic interest rates imaginable looking set to pass the never before broken US$1 trillion mark. More than a third of US adults have more credit card debt than emergency savings.

Past performance is not a reliable indicator of future performance.

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