The Federal Reserve Bank of New York’s quarterly report on household debt and credit has come out and things aren’t looking good. Overall, credit card debt rose 13% in the second quarter, the strongest increase since 1999.
As “experts” debate the word recession, American families are going deeper into debt.
Household debt reached $16T for the first time ever. Credit card debt is up 13% from last year – the biggest jump in 20 years.
Families should not rely on credit cards to make ends meet.
— Nikki Haley (@NikkiHaley) August 3, 2022
What could be causing this increase in credit card debt for Americans? The answer is obvious: rising costs and inflation coupled with wages that cannot keep up.
When faced with a never-ending surge in household necessities like gas, groceries and utilities, many American families turn to credit cards to bridge the gap between wages and costs. To fully appreciate this increase, let’s take a closer look at the Federal Reserve Bank’s report.
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Numbers that keep rising Up Up
The quarterly report shows that total household debt in the United States now stands at $16.15 trillion, a staggering $312 billion increase from last year. This increase in household debt includes mortgages, auto loans and credit card balances.
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Below is a breakdown of each:
- mortgage balances rise by $207 billion to total $11.39 trillion
- auto loans soar by $33 billion to total $199 billion
- and credit card balances have increased by $46 billion
The people most affected are those with lower incomes. Joelle Scally of The Center for Microeconomic Data illustrates:
“While household balance sheets generally appear to be in a strong position, we are seeing increasing delinquencies among subprime and low-income borrowers…”
So why the increase in borrowing? In a nod to Democrat strategist James Carville, “It’s the economy, stupid!”
Americans suffer from #BidenFlation.
– 61% of Americans live paycheck to paycheck
– Age 25 and younger credit card debt has increased by 30%
– 64% of Americans do not believe their savings will last until retirement
– US household debt rose to $16.5 TRILLION last quarter
— Senator Ted Cruz (@SenTedCruz) August 2, 2022
The New York Fed states:
“Americans are borrowing more, but much of the increased borrowing is due to higher prices.”
So far, Americans have struggled with gas that costs more than $5 a gallon and inflation at a record 9.1%. But while the Biden administration likes to tout the increase in average hourly wages, the numbers are wrong.
The average increase in hourly wages is 5.1%. That is a deficit of 4% relative to inflation. So we see why Americans have to rely more and more on their borrowing power.
In a report by Personal Capital, 56% of consumers say their standard of living has fallen, and 69% rightly believe that their income does not keep up with inflation. Americans say they think they need to earn $107,800 a year to feel financially healthy, which is double the national average.
This sense of financial unease is what makes many Americans focus on small wins. As certified financial planner Paul Deer puts it:
“People are prioritizing having a job and lowering their expectations.”
And who can blame them if lowering expectations seems to be our new motto? However, the only balance that hasn’t risen is student loans, which remain relatively unchanged.
Households #debt rose 2% in the second quarter, reaching an all-time high of $16.15 trillion. Households have added $2 trillion in debt since inception #pandemic, not counting their share of the $8 trillion increase in government debt. Annual credit card debt rose 13%, the largest increase in 20 years.
— Peter Schiff (@PeterSchiff) August 2, 2022
This is interesting, given that the Biden administration is issuing the seventh moratorium on student loan debt, with perhaps an additional announcement about student loan forgiveness in general.
But who’s really going to help that?
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Forgiving debts, minimizing personal responsibility
The Wall Street Journal reported that the Department of Education had instructed lending services not to send statements. This indicates that there will at least be an extension for student loan repayments.
However, there is a lot of talk that a much more important announcement is coming from the White House.
The president has been thinking about the idea of forgiving $10,000 in student debt to anyone who earns less than $125,000 a year. However, some who lean more to the left than President Biden say that’s not enough.
Progressives and civil rights groups are pushing for $50,000 in student debt forgiveness, and some are even calling for no income cap. For example, the NAACP sent a letter to the president stating that black borrowers:
“…have virtually no realistic way of paying it back in today’s unjust economy.”
Certainly not with that attitude. The argument for student loan forgiveness is that borrowers are tricked by higher education and the government into taking out these loans and then left with insufficient wages to repay the loans.
Not everyone is in favor of this possible decision, and many want to know why taxpayers who have paid their debts should be forced to pay off the debts of others.
you. Student loan forgiveness forces people who did NOT take out student loans to pay for those who did. This is like getting a bill in the mail from Applebee’s for a meal you didn’t eat. Even madder because the major in gender studies you save works at Applebee’s.
— Jimmy Failla (@jimmyfailla) August 1, 2022
It’s called being an adult
Republican Senator Ben Sasse of Nebraska articulates the counter argument perfectly:
“Forgiving student loans is regressive — it writes off the debts of rich kids who will get it right. It’s a hard blow to any kid who’s paid their way through college or who’s worked hard to pay off their loans.” Pay.”
I couldn’t agree more. My parents could not afford my studies. Not because of any financial irresponsibility on their part, college was and still is very expensive.
So instead of taking out a student loan and getting a degree, I joined the military. My service paid for my bachelor’s and my graduate degree.
And anyone who wants to say I got my college education for free can look me up and try to say that to my face.
I spent many nights after working 12 hours a day and being a mother reading textbooks, writing essays, and studying for exams. I also spent nights studying in a tent, at the risk of being shot or blown up around the corner.
Life is a bit weird. The young people who voted for Biden, thinking they would get forgiveness for student loans, might get it. After being called up to fight in WWIII.
— 🇺🇸 Lowkey Rey 2.0 🇺🇸 (@AtlRey) August 2, 2022
While I understand that not everyone can join the military, my point is that as an adult you have to make mature decisions and work hard for the things you want.
And if people who have chosen to take out student loans can’t repay them, they can be forgiven… what about all these families who are building up credit card debt due to inflation?
Where is their forgiveness?
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Is it worth it?
At this point, the argument can easily be made that college may not be worth it. The average cost in 2020, according to the National Center for Education Statistics, for a student living on campus for a year was $25,700.
At a private institution, that cost rises to $54,500 per year. Tuition for public colleges has increased by 10% in the past ten years and by 20% for private colleges.
With more universities offering online education, the military hurting recruits, and more industries prioritizing certifications over degrees, there is a real question of whether the old path from home to higher education will remain relevant.
With this generation of parents reliant on credit cards to make ends meet, let’s hope for their kids that tuition either goes down or there’s an evolution in post-high school education.
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