U.S. consumer debt reaches record high

The latest consumer credit report released by the Federal Reserve shows that outstanding consumer credit in the United States has reached an all-time high . Currently , the total amount of outstanding consumer credit in the United States is $ 4.7 trillion . In August this year , consumer credit grew 8.3% on a seasonally adjusted annual basis.

In fact, a basic assumption about the American consumer and the U.S. economy is wrong: Consumers may not be sitting on as much cash as many economists say.

While some households have reduced their cash spending, high-income groups still have ample liquid assets and their spending is likely to keep inflation high for a long time, which means the Federal Reserve has no choice but to continue its aggressive rate hike strategy .

Current levels of consumer debt suggest that the Federal Reserve’s rate hikes have not slowed the pace at which consumers are borrowing. While consumer credit declined in the years following the 2007-2009 financial crisis , it has overall increased 90% from the second quarter of 2011 to the second quarter of this year.

Nonrevolving credit, which consists mainly of auto loans, student loans and personal loans, rose 5.1% in August . That level was roughly the same as in July.

However, revolving credit grew significantly at an annual rate of 18.1% . Revolving credit includes credit cards, home equity lines of credit (HELOCs), and personal and small business loans.

While delinquencies and defaults appear to be under control so far, the real concern is that as inflation continues to rise , revolving credit could become a major problem for American consumers by making it more expensive to borrow. This problem would be compounded if unemployment starts to rise .

It is reported that the major banks will release their earnings reports on October 14. Due to market volatility and slowing investment banking transactions, the earnings reported by banks may be disappointing . In the income report, it is necessary to pay attention to the asset quality of the bank's balance sheet to see whether non-performing loans (NPL) have increased, and the level of loan loss provisions.

The data will indicate to markets whether such high levels of consumer debt should be a cause for concern .

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