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February 13, 2022 | US Household Debt Rises by $1 Trillion

Martin Armstrong

Martin Arthur Armstrong is current chairman and founder of Armstrong Economics. He is best known for his economic predictions based on the Economic Confidence Model, which he developed.

Household debt in the US spiked to the highest level since 2007. According to the Federal Reserve Bank of New York, Americans accumulated an additional $1 trillion in debt, with the figure growing by $333 billion in Q4 alone.

Mortgage and auto loans are the main sources of debt for Americans. Home loan originations hit a record high last year thanks to low rates, and mortgage debt increased by $258 billion in Q4 to $10.94 trillion.

Balances on auto loans rose by $15 billion in Q4, and $84 billion over the course of the year. Around $734 billion is attributed to new auto loans in 2021 to a total of $1.46 in auto loan debt. The Fed noted this was the largest volume on record. The chip shortage and supply chain crisis have caused auto prices to spike by 20% on average. The current median monthly payment on a car loan is $418 per month.

Credit card debt also rose as well, increasing by $52 billion in Q4, marking the largest increase on record. On a positive note, card balances are $71 billion lower than they were at the end of 2019.

The International Monetary Fund has warned that high household debt hinders long-term GDP growth. “Our study found that a 5 percentage-point increase in the ratio of household debt to GDP over a three-year period forecasts a 1.25 percentage-point decline in inflation-adjusted growth three years in the future. Higher debt is associated with significantly higher unemployment up to four years ahead. And a 1 percentage point increase in debt raises the odds of a future banking crisis by about 1 percentage point. That’s a significant increase, when you consider that the probability of a crisis is 3.5 percent, even without any increase in debt,” the IMF stated in a report released in 2017. In the short-term, increased debt will provide a small boost to the nation. If inflation persists and people are required to take on more debt for essentials like transportation and shelter, the nation’s GDP will be at risk.

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February 13th, 2022

Posted In: Armstrong Economics

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