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Household Debt Continues to Surge Alongside Inflation

Isaac Nuriani    |
Nov 25, 2022
  • Household debt continues its record climb higher
  • Credit card balances are up 15% year over year
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If you take a casual glance at the latest government inflation report, it’s likely you see good news.

The consumer price index (CPI) for October was 7.7%.[1] That makes it the lowest CPI in the last nine months. It also is the first CPI in eight months to see a measure under 8%. Additionally, October’s CPI represents the fourth consecutive month where the rate of increase declined.[2]

How could it not be good news?

Well, for one thing, while CPI indeed moderated in October, it remains close to the same 40-year highs around which it’s been lurking for the past year.

Additionally, several of the inflation report’s key component indexes continue to reflect worrisome price pressures. The food-at-home index – a proxy for grocery prices – was up 12.4% year over year in October. The gasoline index was up 17.5%. The fuel oil index was up a stunning 68.5%. And the shelter index saw its largest monthly jump in 32 years.[3]

In other words, inflation remains a big problem.

Making matters worse is that the same inflation driving up the prices that Americans have to pay for goods and services is driving down the size of their paychecks in real terms. October marked the 19th consecutive month that real wages were negative.[4]

Prices have been high for the last year and a half. Real wages have been negative for the same period. But consumer spending has been relatively strong; it rose by 0.6% in August and by the same amount again in September.[5] In fact, consumer spending has been negative only one month this year.[6]

So – given inflation’s terrible toll – how is all that spending getting done?

With help from personal credit. Record amounts of personal credit, as it turns out.

Americans have been relying on credit for some time to do their spending. And based on data recently compiled by the Federal Reserve Bank of New York, they seem to be relying on it more than ever.

Indeed, based on the numbers, it’s clear the credit train on which Americans have been traveling through grocery stores, gas stations, shopping malls, auto dealerships and more since last year is picking up speed. As it does, the chances that train eventually will come off the tracks in a particularly ugly way are also increasing.

I mentioned we have updated figures from the New York Fed on household credit use. Let’s take a closer look at what’s going on.

New York Fed: Q3 Increase in Credit Card Balances “Towers Over the Last 18 Years of Data”

Not long after the conclusion of this year’s second quarter, we were treated to news by the New York Fed that household debt was continuing to hit record levels. Household debt increased by $312 billion in Q2, reaching a total of $16.15 trillion.[7]

It’s an awfully large number. $46 billion of the second-quarter increase was attributable to credit card debt. Overall, credit card balances had jumped 13% from Q2 2021 – the biggest year-over-year increase in more than two decades.[8]

But, as it turns out, borrowers were just getting warmed up.

A little more than a week ago, the New York Fed released its numbers for the third quarter. And it’s clear that households are keeping their collective pedal to the consumer-debt metal.

Household debt rose by another $351 billion in the third quarter…the biggest nominal quarterly increase since 2007.[9] The move higher brought total household debt to yet another record level: $16.51 trillion. That’s an increase of 2.2% over the previous quarter and a year-over-year increase of 8.3%.[10]

Without a doubt, we’re in the midst of a significant consumer-debt surge that shows no signs of slowing down.

To be sure, one of the principal drivers of the bigger numbers is higher interest rates. Mortgage balances are up $1 trillion over the past year and now represent $11.7 trillion of total household debt. But higher rates are just part of the story. The other part – the most important part, in my view – is the degree to which inflation effectively is forcing consumers to use credit as a way to stay afloat.

To wit, credit card balances in Q3 saw a whopping 15% increase year over year – a multi-decade high.[11]

“The 15% increase seen in the third quarter of 2022 towers over the last eighteen years of data,” the New York Fed said.[12]

The regional Reserve bank also noted, “With prices more than 8 percent higher than they were a year ago, it is perhaps unsurprising that balances are increasing,” adding – somewhat forebodingly – that “the real test, of course, will be to follow whether these borrowers will be able to continue to make the payments on their credit cards.”[13]

That will be the real test. There already are good reasons for wondering how it will go. Delinquency rates are creeping up.[14] And while they remain relatively modest right now, it’s worth pondering for how long that will last given the unrelenting pace at which consumers are turning to credit. Even as high as balances are presently, credit card application rates are on the upswing.[15] And according to a recent report assembled jointly by the consumer financial services companies PYMNTS and LendingClub, 40% of Americans say they’ll be using some type of financing mechanism – credit cards or something else – to help cover the costs of their holiday shopping.[16]

Commenting on the figure, LendingClub financial health officer Anuj Nayar said, “If you’re using credit cards for convenience, knock yourself out. But most people are not.”[17]

In other words, most of those using credit cards to spend are doing so because they have no other choice.

“Credit card debt is at an all-time high. Credit card rates are reaching all-time highs,” Nayar added. “What the report showed was that, specifically for those who are struggling to pay their bills, they are almost saturating their credit card balances.”[18] 

Americans Once Again Tapping Their Homes for Credit

Also worth mentioning is that the balances on home equity lines of credit (HELOCs) are trending upward again. HELOCs work like credit cards, but can be more desirable to some consumers because the interest rates are considerably lower. Of course, the reason they are lower is because HELOC debt balances are collateralized by consumers’ homes.

HELOC balances had been on the decline for years, but Q3 marks the second consecutive quarter they’ve increased – up $3 billion in the July-to-September period.[19] Notably, HELOC activity is now at its highest level since 2007…the year that kicked off the beginning of the housing crash which, in turn, triggered the 2008 financial crisis.[20]

Explaining why HELOCs are making a comeback, Ryan Leahy, regional president and senior loan officer at HomeTown Lenders of Texas, says, “Clients are saying they want a safety net as credit-card bills rise along with unemployment fears.”[21]

Apparently, they’re so desperate for that safety net that they’re willing to risk losing their homes to have it.

It’s reasonable to wonder how all of this manic debt-using ultimately comes to an end. Consumers don’t have unlimited resources. Credit cards have limits. Home equity has limits. It’s clear those limits have not been reached – yet. But it’s just as clear that the pace and force with which consumers seem content to race toward those limits suggests the possibility that this high-intensity use of credit will end not with a whimper but instead with a terrible bang.

Let’s chat about that some more.

Retirement Savers Left to Ponder: What Happens When the Credit Well Runs Dry?

About a month ago, President Biden responded to a reporter’s question by declaring the economy to be “strong as hell.”[22] It was a curious assessment – even for a sitting president – given the obvious and distinct challenges being faced by American consumers and savers.

The assessment is not just curious – it’s flat-out wrong, in my view. It really doesn’t matter how low official unemployment numbers are. The economy can’t be “strong as hell” if the spending that consumers are doing is funded in no small way by the breathless tapping of credit cards.

But it’s even more than the fact that the economy isn’t strong; a nationwide reliance on credit that’s so great it keeps pushing balances to record highs is an economy potentially headed for big trouble. But you don’t have to take my word for it. You can take the word of superstar hedge fund manager Michael Burry, whose accurate forecast of a housing market collapse in the 2000s made him something of a legend – as well as a central figure in the book and movie both titled The Big Short.

Back in August, Burry said that consumer debt is on track to blow up the economy. He sees it as the catalyst of the next financial crisis.

Burry admittedly can be a bit dramatic in his prognostications. That said, it’s difficult to see the growing momentum with which Americans are continuing to access credit and not think he might, in fact, be on to something here. It’s difficult to imagine how all of this debt use during a period of economic uncertainty can end well.

But all of that could be just the beginning of trouble for savers. Since Michael Burry pointed to a consumer debt crisis as the likely (in his view) trigger for a broader financial crisis, debt levels have only grown further. And as they keep rising, the chances we’ll see significant fallout when the proverbial rubber finally meets the road also rises.


[1] Bureau of Labor Statistics, “Consumer Price Index – October 2022” (November 10, 2022, accessed 11/24/22).
[2] Bureau of Labor Statistics, “Consumer Price Index Archived News Releases” (accessed 11/24/22).
[3] Bureau of Labor Statistics, “Consumer Price Index – October 2022.”
[4] Bureau of Labor Statistics, “Real Earnings Archived News Releases” (accessed 11/24/22).
[5] Bureau of Economic Analysis, “Personal Income and Outlays, September 2022” (October 28, 2022, accessed 11/24/22).
[6] Bureau of Economic Analysis, “Archive” (accessed 11/24/22).
[7] Federal Reserve Bank of New York, “Total Household Debt Surpasses $16 trillion in Q2 2022; Mortgage, Auto Loan, and Credit Card Balances Increase” (August 2, 2022, accessed 11/24/22).
[8] Ibid.
[9] Jeff Cox, CNBC.com, “Household debt soars at fastest pace in 15 years as credit card use surges, Fed report says” (November 15, 2022, accessed 11/24/22).
[10] Federal Reserve Bank of New York, “Quarterly Report on Household Debt and Credit 2022: Q3” (November 2022, accessed 11/24/22).
[11] Ibid.
[12] Federal Reserve Bank of New York, “Balances Are on the Rise—So Who Is Taking on More Credit Card Debt?” (November 15, 2022, accessed 11/24/22).
[13] Ibid.
[14] Ibid.
[15] Federal Reserve Bank of New York, “Credit Cards Defy Slowdown in Broader Credit Demand and Access” (November 21, 2022, accessed 11/24/22).
[16] PYMNTS.com, “Holiday Spending out of Reach for Millions of Households This Year” (November 21, 2022, accessed 11/24/22).
[17] Ibid.
[18] Ibid.
[19] Federal Reserve Bank of New York, “Quarterly Report on Household Debt and Credit 2022: Q3.”
[20] Archana Pradhan, CoreLogic, “The Return of Home Equity Line of Credit Activity” (October 14, 2022, accessed 11/24/22).
[21] Veronica Dagher, Wall Street Journal, “More Homeowners Using Helocs as Financial Safety Net” (November 16, 2022, accessed 11/24/22).
[22] NewsNation, “Biden: ‘Economy is strong as hell’ despite inflation,” YouTube video, 2:36 (October 17, 2022, accessed 11/24/22).
[23] Sarah O’Brien, CNBC.com, “54% of adults say they have stopped or reduced their retirement savings contributions due to inflation, study shows” (October 28, 2022, accessed 11/24/22).
[24] Robert Frank, CNBC.com, “Stock market losses wipe out $9 trillion from Americans’ wealth” (September 27, 2022, accessed 11/24/22).
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