Content adapted from this Zerohedge.com article : Source
Some are starting to sound the alarm of the amount of debt U.S. households are carrying.
Debt could well be the final nail in the coffin of the middle class. Wages are basically flat over the last 20 years so the easy credit approach the banks are taking is what allows Americans to maintain their lifestyle.
This is tolerable when things are going well with the economy and people have jobs. Any pullback could create a snowball effect since there are no real assets for the middle class to fall back upon. While the wealthy can handle this situation, the middle class finds themselves quickly underwater.
American consumers have a collective outstanding household debt of about $13.15 trillion of which nearly $1 trillion is the credit card debt alone, households are truly on a debt binge. These figures should be a wake-up call to all the Americans. The convulsive household debt has surpassed the bubble of 2008 and is still escalating. The economy may not be doing so great, after all.
Compared to 2008, the automobile credit balances have increased to $367 billion whereas the outstanding student loans are around $671 billion. Moreover, 67 percent of household debts belong to consumer mortgages. In 2016, twenty-five percent of all the Americans purchased a new or used vehicle and two-thirds of them are repaying through high-interest, long-term loans.
We are seeing now that household debt has exceeded income for the majority of Americans.
Credit card debt is particularly concerning since it carries such high interest. We are also seeing mortgage debt become an issue with rates starting to rise. Presently, we are not at the 2008 levels in this area but a housing crisis could be brewing. This also has a snow ball effect since consumer credit gets hit also.
The decline in automobile sales is already an indication of the future consumer debt crisis. If lenders continue to provide easy access to credit regardless of its looming default and delinquent potential, retail purchase will face a sharp decline in 2018. This will have serious consequences on the overall economy. The Federal Reserve and other global lenders are a significant contribution to the problem. They allow printing of trillions of dollars and yens for the lenders to distribute to the borrowing consumers at a high interest, leading to a worldwide inflation. All this printed wealth is merely an illusion yet it is raising the cost of living. Prices are rising at an alamingly faster rate compared to the consumer income. There is no increase in real assets. All this is but a mere mushrooming of debt.
Any downturn will be handled by the wealthy. The middle class do not have the resources to do this. When we get to the point of recession, default becomes the only option.