The economy notched a new record last month–and it’s not a good one. For the first time, Americans’ credit card debt levels surpassed $1 trillion. 

During past recessions and economic recoveries, debt levels never reached this high signaling that despite headlines about economic growth and job creation, households are under strain from rising prices. 

When the new administration and Democratic-led Congress accelerated massive and unnecessary federal spending in 2021, they touched off generation-high inflation that batters households with financial pressure two years later.   

The Data

According to new data released by the Federal Reserve Bank of New York this week, credit card balances rose 4.6% (or $45 billion) to hit a series high of $1.03 trillion in Q2 2023. Americans opened 5.48 million new accounts this quarter and limits grew by $9 billion to $4.6 trillion. 

Auto loan balances rose by $20 billion and combined with credit card balances, were major drivers of total household debt rising marginally by $16 billion (0.1%) to over $17 trillion. 

Delinquency rates are an area of concern. While they were roughly flat in Q2 and remained low, previously they had been declining sharply since the beginning of the pandemic. Increasingly, credit card and auto loan debt moving into delinquency is rising (by 0.7 and 0.4 percentage points, repsectively).

Mortgage balances were largely unchanged from the previous quarter and stand at $12.01 trillion. Fewer people are refinancing their homes and home prices are starting to slip. These forces both reflect the impact of the Federal Reserve raising interest rates in an effort to cool down the housing market.

Student loans were the only bright spot in this data. Student loan balances fell by $35 billion to $1.57 trillion. 

What This Means For Me

Household financial health is concerning overall but worrisome for some. Because inflation remains 16% higher than in January 2021, they effectively received a paycut as my colleague Carrie Sheffield explained recently.

Households have had to alter their shopping habits such as trading down on brands or forgoing purchases, digging into their savings, and now racking up more consumer debt to manage month-to-month price increases.

Even worse, Americans are pulling money out of their retirement accounts at an alarming rate. According to Bank of America, hardship withdrawals on 401(K) accounts surged by 36% from the first three months of the year.

There’s only so much hard debt that people can handle before delinquencies really spike,” Matt Schulz, chief credit analyst at LendingTree said. “Ultimately, you just have a lot of people who are doing OK now, but it wouldn’t take a whole lot for them to find themselves in a pretty sticky situation financially, whether that is a medical emergency, job loss, or even just student loan payments restarting.

Student loan repayment is set to begin in October for millions of debt holders which will set up a tenuous financial situation for many individuals and households.

At the root of our economic woes, we find government. Washington spent too much federal cash flooding the economy with money at a time when it was best to allow the economy to reopen and recover from pandemic shutdowns rather than overstimulate the economy. 

As economists at the Federal Reserve of San Francisco confirmed, President Biden’s $1.9 trillion American Rescue Plan drove the inflation rate higher. The inflation rate still has not drifted back down to its level on Biden’s first day in office or the Fed’s target inflation rate of 2%.

Inflation and the economy remain top issues for Americans and President Biden earns terrible marks for his handling of both issues. In recent Reuters/Ipsos polling, 60% of Americans, including a third of Democrats, said they disapproved of Biden’s handling of inflation.

Nearly two in three (64%) Americans say the economy is worse off compared to 2020 according to the same poll. So much for the misleadingly-named Inflation Reduction Act fooling people into thinking it would improve their lives.

Bottom Line

Bidenomics does not resonate with people because they connect the dots between his big-spending agenda and their inflation woes.