What’s Really Going on with Revolving Consumer Credit?

Beyond some of the iffy stuff in the headlines today.

By Wolf Richter for WOLF STREET.

Revolving credit balances in April, not seasonally adjusted – so the actual dollar balances – were $1.04 trillion, according to the Federal Reserve this afternoon. This includes credit card balances, personal loans, etc., and was up by only 2.6% from April 2019.

Let that sink in for a moment: Over a three-year period, revolving credit has grown by only 2.6%, despite 13% CPI inflation over those three years. In other words, the growth in revolving credit has fallen sharply in inflation adjusted terms.

The huge trough between 2019 and today stems from the pandemic when consumers used their stimulus money to pay down credit cards, and when they cut spending on discretionary services, such as sports and entertainment events, international travel, or elective healthcare services such as cosmetic surgery, dentist visits, etc. Over this period, delinquencies dropped to record lows.

Revolving credit balances are barely above the peaks of 2007 and 2008, despite 14 years of population growth and 40% CPI inflation over those years! In other words, revolving credit just isn’t the kind of issue it was in 2008. It’s a sideshow.

In terms of growth – in terms of additional borrowed money spent in the economy – it was minuscule. There was in fact no growth since December. And after the pay-downs in January and February, following the annual holiday shopping binge, the total balances only grew by $14 billion in March and by $17 billion April, for a combined $31 billion.

This growth of $31 billion in March and April didn’t even make up for the $32 billion in pay-downs in January and February. These are actual dollars, not seasonally adjusted theoretical dollars.

In terms of adding to the growth of the economy: Total consumer spending is currently running at an annual rate of $17 trillion, with a T. So how much growth would the additional spending from the increase in revolving credit add? That was a rhetorical question. It’s minuscule.

Since 2019, consumer spending has increased 19%, and revolving credit has increased only 2.9%, both not adjusted for 13% inflation over the period. In other words, growth in revolving credit fell sharply behind inflation and fell massively behind growth in consumer spending.

This shows that consumers are relying less on revolving credit.

Credit cards and some types of personal loans, such as payday loans, are the most expensive form of credit, and they often come with usurious interest rates. Credit card rates can exceed 30%. And Americans have figured this out. If they need to fund purchases, many consumers use cheaper loans, including cash-out refinancing of their mortgages.

And many, many consumers are using their credit cards just as payment methods, and they pay them off every month. That’s what these relatively low balances show.

The beautiful seasonal adjustments.

The seasonal adjustments to the actual revolving credit dollar balances are designed to match up with the peak month every year, namely December. In other words, there are no seasonal adjustments for December, but the other 11 months are always adjusted upward, as if every month were a December during peak holiday shopping binge. And this creates the bizarre pattern where during 11 months of the year, the seasonal adjustments grossly overstate the actual revolving credit balances.

In this chart the green line represents the seasonally adjusted balances. Note how it rides on top of all the Decembers. The red line represents the actual balances, not seasonally adjusted. And note the crazy disconnect between the two lines over the past four months:

The data on consumer credit that the Federal Reserve released today was its limited monthly set, just two incomplete summary categories of a complex phenomenon: “revolving credit,” which I discussed above, and “nonrevolving credit,” which is composed of auto loans and student loans combined, but not separated out, and it doesn’t include mortgages, HELOCs and other debts.

The individual categories of auto loans, student loans, mortgages, and HELOCs are released only quarterly by the New York Fed, and I discussed them for Q1, covering every category, including mortgages and HELOCs, plus delinquency rates for every category, plus third-party collections, foreclosures, and bankruptcies, as part of my quarterly review of consumer credit in America.

This quarterly data shows credit card balances by themselves, plus other revolving consumer loans:

  • Credit card balances at $840 billion in Q1, were back where they’d been in Q1 2008, and below Q1 2020 and Q1 2019, (red line).
  • Other consumer loans (personal loans, payday loans, etc.), at $450 billion, were below the levels well before the Financial Crisis (green line):

In other words, revolving consumer credit was roughly flat with 13 years ago, despite 13 years of population growth and 40% inflation. In real terms and per capita, it has become a sideshow.

Sure, some people are in over their heads, and they’ll fall behind. That always happens. But in the overall credit risk spectrum, this just isn’t a big issue anymore. Consumers have gotten a lot smarter since the Financial Crisis. They’re borrowing via much cheaper mortgage loans and auto loans, and proportionately much less at these rip-off rates that come with credit card and personal loans.

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  180 comments for “What’s Really Going on with Revolving Consumer Credit?

  1. PassengerPidgin says:

    For me, this was a well-timed article that put some headlines in perspective. Thanks, Wolf!!!

    • Mark_2 says:

      What he ^ said. Thank you

      • Ed says:

        Looks like there’s an upward overall trend

        • Wolf Richter says:

          Ed,

          The upward trend, if any, is far smaller than inflation and is far smaller than growth in consumer spending, which means that revolving credit has been losing significance in the overall scenario since 2008, and now is just a sideshow.

          If you want to find a potential problem, you need to look at mortgage debts, which we look at on a quarterly basis. Now there, you’re talking some REAL numbers, both in terms of growth and overall balances. But most of this debt is held by investors (MBS), not banks, and much of it is guaranteed by the government.

          For real issues, look at corporate credit.

        • Nacho Bigly Libre says:

          Personal savings rate has been dropping off. Even when not adjusted to inflation, seems to be at lowest in the last decade.

    • Old school says:

      If you look at the total debt to GDP it keeps marching higher. If consumer doesn’t borrow at a real interest rate, the government will borrow at 0% to keep the trend up and to the right.

      Government will probably end up taking the student loan debt at real interest rate on their books and adding it to the 0% their debt pile. The downside is government debt tends to be nonproductive as the primary use is to buy votes instead productivity gains. Plus it discourages merit based rewards.

    • Morbaine says:

      I didn’t realize ‘Buy Now, Pay Later’ (BNPL) until I was at a conference last month.

      I wonder if the Fed has adjusted its methodology to account for that type of financing.

      It was interesting to learn at said conference that credit bureaus and regulators are trying to figure out how to handle them.

  2. historicus says:

    zero hedge has a different take on credit card debt

    • Wolf Richter says:

      That’s precisely why posted this. I’m so tired out that braindead clickbait BS.

      • Al says:

        Tell us how you REALLY feel…lol.

      • Mark says:

        I must be crazy

        My two favorite sites are WolfStreet and Zerohedge

      • Niko R. says:

        Depends on the timeframe selected. If one omits the n-fold ramp-up in CC debt 1990 to 2008, it is all normal. Just compare the growth of disposable income vs. growth of CC debt over that period. It looks grotesque. I prefer the view that CC debt ramp-up to 2008 was abnormal, didn’t get resolved and everything afterwards was covered over by money print. I guess that’s why most MSM charts have it exactly from 2007, the tip of madness. But that is just me.

        • Wolf Richter says:

          You’ve got to factor in population growth and inflation for these multi-decade things, and come up with an inflation adjusted per-capita number to understand whether or not the burden has risen — so that’s the indicator or risk you’re looking for. After you do that, you’ll see that we’re lower than we used to be.

          And this monthly data is incomplete. Look at the quarterly data in the last chart of the article: this shows you both types of credit, and how both changed.

  3. Flea says:

    Puts some clarity in stupid talking heads on cnbc

    • Pauper says:

      I only listen to Jim Cramer.

      • SoCalBeachDude says:

        Cramer is crazier than a rabid loon.

      • brewer55 says:

        I hope you were kidding and that it was a ‘tongue ‘n cheek’ statement.
        Cramer is one special POS fraudster working for the banksters or some other NWO enterprise because he certainly is not providing information for the average investor.

  4. crazytown says:

    Tough to interpret; How much of the increase from the pandemic lows is from business spend and other general purchases returning (balances that are paid off each month and don’t incur interest) versus debt that was being carried going away and then coming back up. If it’s the latter, looks like many people wasted a once in a lifetime opportunity to break free of the scourge of revolving debt. On the other hand, considering inflation this really doesn’t look that bad. Just gas purchases alone are certainly running many more $$$’s through credit cards these days.

    • Wolf Richter says:

      It doesn’t matter. It’s small in terms of burden after 13 years of population growth and 40% inflation. You’ve got to wrap your head around that concept. Consumers have found cheaper ways to borrow.

      • SandyV says:

        It is great to have some perspective. But given that the seasonal adjustments did a reasonable job on the past the current growth rate (based on adjusted number as explained) appears to be the highest since 2006. Maybe these cheaper borrowing alternatives are becoming more difficult to access. To me this does not look great. Will be interesting to see how this evolves.

        • Wolf Richter says:

          That’s just the kind of thoughtless nonsense I’m so tired off. There was a historic trough, and you’re measuring against the low point of the trough that took levels back to 2007, and there is 8% annual CPI inflation which inflates all the prices and spending; and there’s 6%+ wage increases that reduce the burden further. What you need to look at is the 2.6% increase since April 2019 (three years ago), after 13% inflation.

          For a better perspective look at the quarterly chart at the bottom.

          I know people love doom, but don’t look at credit card debt for it. It’s just not there.

        • Gooberville Smack says:

          I’m not so sure. Credit use literally exploding by 31 billion in March and April tells us something, does it not? What if this trend continues for the next 6 months? Or am I a doom porn addict?

        • Wolf Richter says:

          It bounced back (almost) from the $32 billion in pay-downs in January and February. As explained in the article.

        • Mr. House says:

          How does the consumer savings rate play into this? That is one thing zerohedge keeps pounding on about when talking about consumer credit that i notice wasn’t mentioned in this article.

        • Wolf Richter says:

          The “savings rate” is kind of a misnomer. It’s the rate of total consumer income from all sources (but not capital gains) minus consumer spending. Savings rate = (aggregate income minus aggregate spending)/aggregate income.

          It doesn’t reflect any money consumers put in their savings accounts. Consumers do all kinds of stuff with this “savings,” such as buy stocks, or pay down their credit cards, or use it for down-payments, etc., which are activities that don’t count as “spending.” So this isn’t money that sits somewhere waiting to be spent.

          All this data is “annualized” (roughly multiplied by 12) so you get huge moves up and down on a monthly basis.

          But yes, when stimulus and PPP were handed out, consumers got a lot of “income” but didn’t spend it all, and the “savings rate” spiked. That additional income has gone away, and the spending has gone up, so the savings rate has gone down.

      • Gattopardo says:

        This is hugely bullish. It means Main Street investors have plenty of margining power to double down and buy the dip(s). Yes! Now, where is that imploded stocks list? It’s time to get long!!!

        • The Real Tony says:

          The dip was way back in 1982.

        • Tom S. says:

          It’s hugely bearish because it means inflation has room to run. Greed and short sightedness from Wall Street will keep pushing until something breaks. I expect a large, overleveraged, investment firm to crash and set off the next crisis.

      • Phoenix_Ikki says:

        HELOC perhaps?

      • VintageVNvet says:

        this ”consumer” has found the cheapest way to borrow is NOT to borrow at all,,,
        and take every possible discount offered, including asking if CASH discounts available, etc., etc.
        MOST ”mom and pop” places are very happy to offer cash discounts when asked,,, with NO paperwork of course….
        very similar to the CASH discounts WE used to offer for all types of construction work and other kinds of labor,,,
        ”back in the day”

        • VintageVNvet says:

          WE being the ”Berkeley/Bay Area Corps of Engineers” in this case,
          circa 1960s-80s

      • WolfGoat says:

        Hey Wolf, it seems you are saying there are only two ways this phenomenon is unfolding…
        Either we are getting better as a society of managing our debt by buying only what we can afford…
        Or, we are financing our needs via home refinancing and pulling equity out of our inflated housing market?

        Am I reading this right?

        • CrazyDoc says:

          Is there a total $ amount on how much home refinancing has been taken out over this time period and is that the new credit card.

        • VintageVNvet says:

          NO WG, you are absolutely reading it WRONG as long as you conflate ”needs” with ”wants”….
          ALL, repeat, ALL of this and the last crunch/crash are based only on WANTS, as opposed to needs…
          WE, in this case the family WE, have discussed this for many years, and, consequently, WE ”’SAVE”’ more than half our income,,, though I will admit many challenges from my ”better half” pointing out that my spending does not ALWAYS,,, fall into OUR ”need” category….
          Others on here have made very clear comments that ”most” folks in USA WILL have ”declining” standard of living,,,
          NOT those who clearly KNOW the difference between ”want” and ”need” IMHO.
          Clearly a challenge for those of US who are addicted to the constant propaganda AKA
          ADVERTISING

        • Wolf Richter says:

          In terms of credit problems, in magnitude, it’s with corporate and business credit, not consumer credit.

          In terms of consumer credit, credit card debts are minuscule. If you want to look at a potential problem, look at mortgage debts, which I do on quarterly basis. Mortgage debts are 20x credit card debt. If home prices decline significantly, there are going to be some problems. But even mortgage debt is mostly held by investors (MBS), not by banks, and much of it is guaranteed by the government. So banks won’t be the issue.

        • Harrold says:

          HELOCS are way down.

        • Mr. House says:

          “HELOCS are way down.”

          Thats what a deflated bubble looks like!

        • Wisdom Seeker says:

          Two other scenarios:

          1) People are paying for things using other means besides credit cards. Could be the new payment systems (PayPal, Venmo, Zelle, Square), could be from profits gleaned from cryptos, sale of stocks, home equity cashouts.

          2) Corporate travel is not what it used to be, so workers aren’t putting things “on the card” to be “expensed” later.

        • Martin says:

          So what’s going to happen to all of the MBS sitting on Fed’s balance sheet should the market go south?

        • Wolf Richter says:

          Martin,

          They’ll be fine. They’re all guaranteed by the taxpayer. The Fed only holds “agency” MBS, meaning those issued by Fannie Mae, Freddie Mac, etc. that are guaranteed by the taxpayer.

          So you asked the wrong question.

          The correct question should have been: “What happens to the taxpayer should the market go south?” 🤣

  5. Otishertz says:

    This is because the dumb money made a lot of money in the last 20 years. The corporate and government employed had equity to cash in on usually. Can’t argue the decline in CC balances in real terms but the graphs show a growing return to usage of usurious credit. It’s not like people all of a sudden became financially astute and forswore credit cards and all of a sudden people are all paying them off every month for Space Miles. If this data series jumps off the flatline it is a canary in a bathroom, or coal chamber, or something

  6. ImplicitI says:

    Why did credit card companies raise rates for everyone so much after the 2009 debacle? Rates never came back down to their average from the past.
    Is the answer just because they could, or did the defaults convince them to not return to the lower rates of the past?

    • phleep says:

      The 2009 debacle was an event of re-pricing credit risk upward. Debt was ridiculously underpriced before then, and consumers were binging debt, complacently running themselves underwater. Part of the reforms legally were forcing in more diligence toward borrowers, raising the cost of credit. Maybe this deterred consumers from foolishly damaging their balance sheets, and they at least have some better balance sheets for the time being, so maybe the outcome is a plus, (partly) as intended by regulators? Most places like this have commenters who breeze right past any possible positive effect of regulation. Sometimes things costing more is good.

    • Augustus Frost says:

      Maybe a combination of both. I worked for a major card issuer during the GFC though not in this area.

      What the GFC demonstrated is that absent fake “growth”, both consumer and corporate credit quality is actually in the sub-basement. The GFC wasn’t a “black swan” but more a reflection of what happens when actual risk is priced somewhat “correctly”.

      Corporate credit quality is worse now while consumer is better. However, this improved credit quality is mostly or entirely due to the bond mania (which includes QE) and above trend government deficit spending since 2008 which accounts for most “growth”.

      Both make low unemployment possible even as “growth” has mostly been weak to pathetic. It’s obvious that if the labor market wasn’t artificially inflated (even before the pandemic), consumer quality would be (much) worse. Without reflating the asset mania (both recently and after 2009), consumers would also have far less “wealth”, including home equity.

      It’s mostly if not entirely fake.

      • Martha says:

        Agreed, but a bubble in fiat is a bubble only when the money printer stops. Otherwise it’s business as usual, mark to CB fantasy. CB practically creating a fiat virtual fantasy land to substitute reality. They will be right until it cannot continue.

  7. John H. says:

    I’m torn.

    On one hand, I appreciate the message that US consumers seem to have gotten some religion, and are managing their debt better than they did in 2008. On the other hand, the article, as presented, skips over some critical data.

    I know and appreciate that you are covering more recent history, Wolf, by going back to 2003 on the chart series you provide. However, ignoring the dramatic rise, especially beginning after World War II, and continuing through the turn of the century downplays the importance of the acceptance of consumer debt in the US.

    Household debt (per McKinsey Global Institute, Debt and Deleveraging) rose from 38% of GDP to 72% in 2000, and of course has continued to rise from there.

    HH debt (slightly off your subject, I know), combined with government, corporate and financial debt have risen ever since the 1920’s, and most likely due to federal policies, IMO. The Drum Major at the head of the debt parade has been the Federal Reserve system, which promotes and protects increased risk taking by the US banking sector, and thereby promotes consumer debt too.

    At what level does Systemic debt to GDP become unsustainable — that’s my question.

    So, thanks again for an insightful article, but please accept my well-meaning criticism for not exhibiting the longer-term consumer debt trend.

    • Petunia says:

      John,

      The rise in consumer debt can be traced to the dissemination of credit cards starting in the 1970’s. Before that credit was widely available but more local. Credit cards simply make credit easier to use and track.

      My parents never had a credit card but had an account with the grocer, the butcher, the furniture store, the appliance store, etc. Every creditor was a local business.

      Now you need a credit card to shop online or to get a haircut appointment.

      • Wisoot says:

        Dissemination of cards was the action. The social programme upgrade was getting people to value a piece of plastic, and trust the numerical value held in a holding place – not a shoebox under the bed – called a bank remained consistent and accessible.

        • phleep says:

          Credit cards were mass-marketed by Citi, headed by Walter Wriston. he was a classic postwar go-go big businessman. This did stimulate a lot of trade and business, from which many folks benefited, not merely big biz or Fed-linked elites. But everything has a price. And there will always be foolish users who misuse a technology. Either we protect people from themselves, or not. Can’t have it all ways.

    • Old School says:

      John H.

      At what level does the debt become unsustainable?

      As Charlie Munger says nobody knows where the limit is and unless you’re a fool you don’t get anywhere close to the unknown.

      • Brent says:

        We are not fools.We are sci-fi fans 😁

        “The only way to discover the Limits of the Possible is to go beyond them into the Impossible.”
        Arthur C. Clarke

        So let’s keep going… Like Energizer Bunny…

    • Wolf Richter says:

      John H,

      Here is the entire history of credit card debt and other revolving credit. Note how it boomed, multiplying over the years several times, until 2008, and then it essentially stalled, while everything else rose: population, inflation, asset prices, home prices, incomes, the Fed’s balance sheet, etc. But this portion of consumer credit remained roughly the same for 13 years, after the huge gigantic boom. That’s why it was a problem in 2008, and that’s why it’s not a problem now because everything else has gotten so much bigger, but this hasn’t:

      • Mr. House says:

        So you’re saying 40 years of growth in consumer debt was unwound in two years and its all equilibrium now? I’d say the average consumer and the economy in general doesn’t seem to match up with that. I’d agree with you if consumer debt was hovering around 500 billion instead of still somewhere in peak territory.

        • Mr. House says:

          How can you know what equilibrium is if you never let the bubble deflate? Essentially the last 14 years have been the opposite of what a market is, the lack of price discovery.

        • Mr. House says:

          Here is an interesting thought: What if balances were only rising due to that high interest rate? What if consumers were only making the min payment and balances were growing due to that?

        • Wolf Richter says:

          Mr. House,

          You’re looking for trouble in the wrong place. The issue isn’t credit card debt. Credit card debt is about $840 billion, when consumers spend $17 trillion a year. Credit card debt is minuscule in the overall scheme of things. If losses amount to 10%, it’s just $84 billion, which is not even a rounding error in the US economy. And these losses are spread across 5,000 banks and 2,500 credit unions and millions of investors that have bought the ABS backed by credit card balances. They won’t even notice it.

          The issue with consumer credit is mortgage debt if there is a significant downturn in home prices. Mortgage debt is 20x credit card debt. If there is a 10% loss, it amounts to $1.6 trillion with a T.

        • Augustus Frost says:

          Credit card portfolio risk is concentrated in a very low number of banks, but Wolf’s point is still valid.

          I’m looking at corporate credit or maybe leveraged speculative finance within the US or a credit event from elsewhere as the next supposed “Black Swan”.

          There are numerous bombs (many hidden in plain sight) ready to detonate at any time. The timing is psychological.

      • VintageVNvet says:

        NOT the entire ”history” or more appropriately, ”herstory” Wolf:
        Mom had ”charge accounts” at almost every place in town who would provide them,,, most were ”mom and pop” type local small biz in the 1950s….
        Certifiably NOT any any kind of currently big biz.
        Really appreciate the charts back to late 1970s, but the ”credit” biz been going on a long time before that, far damn shore….
        And WE, in this case the ”consumer WE” will continue to pay for all the ”credit” and ”loans” and so on and so forth for at least until the next MAJOR CRASH.
        After that crash, which many on here seem to agree with me WILL happen,,,
        Seriously, no one knows,,, and I encourage ALL on here to consider that no one knows.

        • Mr. House says:

          “And WE, in this case the ”consumer WE” will continue to pay for all the ”credit” and ”loans” and so on and so forth for at least until the next MAJOR CRASH.”

          Exactly that is my point when mentioning equilibrium. Everything isn’t a problem until it is ;)

    • John H says:

      Thanks for those responses, and especially for the longer-term chart.

      I don’t mean to stray too far off topic (consumer credit — a component of household debt), but my point is that since the centralization of banking reserves in 1914, debt of all categories including governmental, corporate, household and financial continually grown, and that this can’t continue forever.

      The relative proportion of debt to the overall economy is a 20th century phenomenon, and makes the financial system brittle and precarious…. and it is largely the result of central banking. That all countries seem have participated in the acceptance of heightened debt levels adds no solace. It really is different this time, and not in a good way.

      Thus my continual carping about the need for a “rethink” on centralized banking, the purposes of the Federal Reserve System (which are many), the controls we place upon it (which are few), and the risks and consequences of its mismanagement.

      • phleep says:

        Life and its risks have grown radically, exponentially better for vast numbers of people globally since that Golden Age. Yes the picture is mixed, but I think you are portraying it as unmixed. There were huge deep crashes and multi-year depressions before the advent of US central banking. Banks (and the often funny money they privately issued) failed all over the place. In the 1890s and 1907 the whole system had to go hat in hand to a private oligarch, John Pierpont Morgan, to coordinate a bailout. Is that what you recommend?

        • Bobber says:

          When bubbles burst in earlier times, the right set of people were taken behind the woodshed.

          With central banking, the habitual speculators win, via continual pumping of the money supply, and there is no viable future to look forward to. Everybody is paralyzed, waiting for the crash to occur.

          For this reason, there can be no comparison of the central banking era to earlier times. For civil society to function, we need fairness, consequence, and justice, NOT favoritism, gambling, and whimsical economic behavior. The rewards of society must be reasonably correlated with effort and productivity.

        • John H. says:

          If you are suggesting that a bailout from an oligarch or continual bailouts from our own government comprise the full solution set, then I can’t answer because I disagree with the premise.

          I am not proposing that we “end the Fed .” But it’s mandates — written and unwritten — are both unachievable and ultimately harmful. The Fed’s methods disrupt price discovery and free-market rebalancing mechanisms, and its intrusions determine winners and losers. Some crises seem to be forestalled, but always at a price of unintended consequences down the road. Ty

          The scope and power of the Fed has advanced with each decade of its existence. This evolution and our current central banking dominated and distorted world, demand an public reappraisal of the central banking model.

        • VintageVNvet says:

          you seem to be forgetting the ”little old ladies of every gender and variety” plp:
          The origin of the FRB was directly because the LOLs would bury their gold in the back yard in the boom/good times,,, and then dig it up and buy during the crashes,,,
          Rich folks who at least tried to control the economy/wealth knew this very well, based on many crashes prior to 1913, when, typically, the ”banks” would be wiped out, and the LOLs would prevail with their ”GOLD” cash.
          And so the FRB was established to screw the LOLs and all the rest of WE the PEONs.
          Clearly, the FRB has done it’s job well,,, eh

        • Augustus Frost says:

          The periodic market panics and depressions prior to the creation of the FRB will be replaced by a “fat tail” catastrophic systemic failure at some future TBD date.

          Its fake financial stability made possible by mania psychology and mostly government created moral hazard.

          Look at bank deposit insurance. I’m probably the only one here who has my opinion (that it’s actually contributed to recklessly unsound banking) but purportedly in 1933 at the McFadden Commission hearings, bankers testified against it, at least some of them. Zero banks hold that opinion now.

          This is an example of a government guarantee which is essentially viewed as “free”, despite the minimal bother of the S&L “crisis” and GFC.

          Yes, it’s worked great for the last 90 years to those who were around to this point. Now that debt and debt ratios have reached unprecedented extremes, I’m predicting it won’t be so great for those who will be around for the bust. It’s another generational economic transfer.

          Bank deposit insurance is just one of many. There is the FRB “put” and income transfers generally and an alphabet soup of agency guarantees: GNMA, FNMA, FRE, PBGC, OPIC, EXIM Bank….

          Foreign policy has done the same thing extending security guarantees to any number of countries, most of which actually represent no strategic interest to the country except because the US in an Empire.

          One of these days, these guarantees are going to be triggered in multiple, all at the same time creating the worst economic (and possibly political) crisis in the history of the country.

          The biggest bubble ever in search of a pin.

      • Wisdom Seeker says:

        Re: high debt to GDP levels

        In 2008 I was really worried about this, but not so much now, except for the Federal debt.

        The risk in high debt/GDP levels isn’t the high debt itself, since your debt is my asset (and vice-versa), With modern computerized finance it’s possible to have a lot more offsetting debts/credits, since the machinery makes sure payments get made on time so everyone’s happy. And more items are guaranteed or backstopped somehow. Since the risk of defaults is smaller, higher levels of financial interconnectedness (debt levels) are not unreasonable.

        The risk for non-government debts is a wave of defaults and the associated consequences for asset prices and economic behavior. Debts in the economy are a web, a complex network of promises. If the web is too tight then it overly constrains people and businesses. It can also lead to overvaluation of assets, and the web can tear during a recession when losses get realized. But since we’re off the gold standard, the classic 1929 “debt deflation” is cure-able by the sorts of policies used since 2008.

        On the other side, the risk associated with high government debt is much less obvious, but far worse. High-inflation can bring a banquet of bitter consequences even without hyperinflation. Governments love to make promises to pay, but often fail to deliver, except with freshly printed money that doesn’t buy as much. For instance, anyone who bought short-term U.S. Treasuries in the past 2-3 years is now deeply underwater (after inflation) on the “safest investment in the world”. How long will people continue to accept that sort of fleecing? I worry a about this because it could (will?) drive a deep change for investor psychology. I could see a bond-vigilante “credit stop” revulsion towards government debt (except at extremely high yields), like in 1980-1982. At today’s high debt/GDP levels such an interest rate surge would have far greater and longer-lasting consequences, and could be catastrophic not just for the government but for all areas of economic activity that are currently debt-dependent (housing, real estate, most corporate capital structures…).

      • Kevin says:

        As long as someone controls the money printer, they are sure to abuse it. Abolish fiat, the Fed, and the CB system!

  8. dang says:

    The data only lie about tomorrow, never today.

    I think your right, the smart consumers are keeping their powder dry, for now, so they can borrow when the economic fortunes fail them.

    • dang says:

      Then they will be fed to the buzz saw, of that which the wall street wise guys don’t like to talk about, the banking cartel.

      Is it reasonable, a civilian judging what is going on, the criminal banks, in unison, all charge the same penalty rate of 17+ pct, even while the Fed was showering them with cash.

      A prudent person would feel uncomfortable at the idea. Hoping the young people, who are now in charge sort it all out during the tenor.

      • dang says:

        I subscribe to the prediction that the S%P 500 index will be at 3400 vs it’s current level of 4100, by August. Since I have no dog in the fight being too old to engage in the glamour sports that once defined my ethos, I am much more interested in the path of the interest rate.

    • phleep says:

      dang,

      > the smart consumers are keeping their powder dry, for now, so they can borrow when the economic fortunes fail them.

      If you do not have an ironclad contract to be provided credit at a certain time and level, a creditor can simply refuse to grant (or keep providing) it, or unilaterally raise the price. I’m keeping my powder dry in the form of cash I can pay bills with, and without faith in affordable credit during a liquidity crunch. Holding my own cash is costing me at least 8 percent inflation “interest,” but there are worse things.

  9. Petunia says:

    After using 50% of my available credit line last month, they increased my limit by 60%. No credit contraction here.

    • Wisoot says:

      If you need something to be done they say give it to a busy woman.

      As a bank – if you need safe borrowers give it to those who regularly borrow/ pay back.

      • Halibut says:

        Yep. That’s why they have a scoring system. The higher the FICO, the better you are at making money for the banks.

        • JJ says:

          I have to disagree with this somewhat.
          Carrying a credit card balance lowers your FICO score through credit utilization. The higher your credit card balances carried over month-to-month, the lower your score.
          Customers who pay off their cards every month have the highest FICO scores, yet are considered ‘freeloaders’ by the lenders since the only profit to be made is off the merchant fees instead of the cash cow of collecting high interest on top of merchant fees.
          Consumers who carry a credit card balance are riskier with lower credit scores, yet make more profit for CC issuers. Somewhat akin to the delicate dance of finding high bond yields without too much default risk?

    • phleep says:

      Petunia,

      > they increased my limit by 60%. No credit contraction here.

      No, instead, just credit risk enlargement. And new credit can be contracted by the creditor unilaterally at any moment.
      If your prospects are good, great. I would not keep pushing this 50 percent envelope. I have only used 1/6 of my limit at any time.

  10. Wisoot says:

    “Since 2019, consumer spending has increased 19% and revolving credit has increased only 2.9%, both not adjusted for 13% inflation over the period. In other words, growth in revolving credit fell sharply behind inflation and fell massively behind growth in consumer spending.”

    … OR the people pool data got bigger quickly.

    How many more people have entered the surveillance zone aka fall under scrutiny of western analytical pools of data such as World Bank. Many with no previous bank account have forged their way into surveillance zone… for the luxuries of regularly stacked food shops and a mirage of “manmade chemical-dependent” health care promise. Ignore your immunity they cried.

    Oh yay Oh yay Roll up. Come and live the high life where robots and space travel were born. Leave behind your herbs and forests, your fields and natural ways. Come be a pawn in our bean counting cement glass tin cities and your reward? Have as much credit as you like to buy plastic packaged ointments. Chemically lobotomise your body mind . We’ll help you forget the peace and harmonious tranquility of a backward life. Noise amd lies are your food now. You are ours now, ripe for the picking. Said F Ph armer Banker. When the world gets smaller growth must still happen. Until the era of growth addiction passes.

    • Einhal says:

      I have absolutely no idea what you’re trying to say

      • Halibut says:

        If your mother was a light bulb and your daddy was a two-by-four, you could get eight footballs into a doghouse. That’s how I understood it.

        • drifterprof says:

          Which reinforces his original premise that growing shrooms in the dog house was no easy task.

      • VintageVNvet says:

        c’mon E, even this old guy get’s it:
        ”y’all are suckers” just as described by P.T. Barnum a gazillion years ago
        except instead of viewing the circus, all y’all ARE the circus
        as in animals in a cage of debt, eh

        • phleep says:

          Debtors per the data here are not bigger suckers than in 2008, at least per revolving credit. Opposite of what you assert here.

          A simple recollection of those times brings back scads of people putting anything and everything on plastic, in a sort of haze of glee. It doesn’t mean a credit crisis couldn’t happen now, but as Wolf shows, it isn’t revolving consumer debt at this moment. The “cage of debt” problem (and epicenter of a new crisis) could be corporate or sovereign, but not this. Also, household balance sheets could deteriorate, but the disease vector is not this.

  11. cb says:

    Telling measures are:

    1. Total debt
    2. debt burden as a percentage of income

    FED interest rate suppression allowed many to increases their total debt while simultaneously reducing their debt burden

  12. Wisoot says:

    Was 2008 the moment when it dawned that internet digital numbers equal money equal nothing stopping us now. Did you notice laws and legislation stopping the activity? No! Bent the rules to get here. Question is not – who they were at that time – in charge of making up new digital numbers – that played the field – but how long they can continue – people tuned in and active – social media wildfire coupled with the trend for whistleblowers to right wrongs. 2008 built on 2001. What we can get away with we will. Once laws are on blockchain, you try backhanding a data entry box! It just doesnt want to open.

  13. Jeff says:

    I’ve never carried a balance on a credit card in the last 50 some years of having one, never paid a penny of interest. I also get regular alerts from the credit agencies. When I have a high credit card bill, like when I bought $15,000 worth of appliances for my new house, my credit score goes down- even though I pay it off at the end of the month as I have done for 50 years. The next month it goes back up. They call it credit usage but I just think of it as a payment method. The score never falls much below 800 but it just seems stupid.

    • Harrold says:

      It makes perfect sense, Jeff. When you have a large balance you are a worse credit risk. So your score should go down. When you pay it down you become less of a risk.

      Even for someone with a pattern of paying off the cards every month. When people get in trouble — lose a job, divorce, medical — they often max out their cards and never pay it off.

  14. Harrold says:

    Wolf, thanks for being the voice of reason. Consumer spending is near record levels. Consumer credit is not a concern. Jobs openings are thru the roof. I cannot understand why blog readers are almost universally pessimistic.

    I guess people love to find things to worry about. But they don’t behave as if they are worried. Outside of negative blog comments they are packing restaurants, bars, airports and hotels. Not cutting back in the face of higher prices.

    It will be interesting to see how many fed rate hikes it takes to break inflation. To do that it will have to break consumer spending, which will filter into corporate profits and stock prices. QT started this week. Let the games begin!

    • SocalJimObjects says:

      Job openings are through the roof, but employment has not recovered. So where are people getting the money to spend?

    • Nemo 300 BLK says:

      Outside of negative blog comments they are packing restaurants, bars, airports and hotels. Not cutting back in the face of higher prices.

      Not true.

      We were in the Keys last week first flying into EYW for a night, then driving to Marathon to spend a week.

      Duvall street was slooow last Friday from 10 pm to midnight. Maybe fifteen cars were cruising Duval, Sloppy Joe’s was full but few standing around the bar, and Capt Tonys was 1/3 of the way full even with a band. We stayed at the Hilton Graden Inn and the parking lot was half full.

      When we drove up to Marathon at 1pm Saturday, there wasn’t a single bar/restaurant/gas station/shopping outlet that had more than a 1/2 full parking lot. Southbound US1 traffic was weak.

      We got to Island Fish Company around 2 pm and were the only ones at the bar. The bartender said they spent all day Friday prepping for Saturday but few showed up. He said they were slammed this time last year.

      Last week, traffic on US1 looked like a Tuesday in April, and there wasn’t a single restaurant we couldn’t walk in or that had more than half the tables full 5-6 pm.

      We’ve been coming to the Keys almost every year since 2007, and we know what it’s supposed to look like during each season.

      • Halibut says:

        Yep. I trust your empirical evidence along with the fact that most people must cut back with current inflation levels.

        Sure, some might juggle credit or exhaust savings to maintain habits, but I believe the majority just cut back spending — or even if spending is flat, it’s less economic activity because the money doesn’t go as far.

        Math is a stubborn thing.

    • Augustus Frost says:

      “I cannot understand why blog readers are almost universally pessimistic.”

      Maybe because it’s because you are closing your eyes to the obvious unprecedented economic and financial distortions?

      Or do you actually think that what exists now is remotely normal and sustainable?

      If you are in doubt, what do you think would happen if the FRB’s balance sheet returned to the pre-GFC trend (to primarily accommodate increased FRN in circulation) and federal government budget deficits did likewise?

      Let me answer it for you. If this had been done since 2009, going by prior reported GDP, the economy would have had virtually no actual (real) economic growth or been in contraction for the last 13 years. Much if not most of the supposed “wealth” increase would also disappear, as it’s also mostly fake.

  15. andy says:

    Well spotted Wolf

    Seasonally adjusted figures are just an obfuscation.

    Once you have all the seasons data and can compare like with like, there is no need to hide the actuals.

    Let users of the data draw their own conclusions from the actual data points, instead of having to contend with some arbitrary and not well understood manipulations.

  16. Happy1 says:

    Too bad student loan debt didn’t do the same…

    • Mr. House says:

      Well people haven’t been making payments on it for over two years now, so you can thank that for being a partial cause of inflation.

      • David G LA says:

        Good point. And maybe not having to make monthly payments of $400, 569 or 834 has also contributed to the lower credit card usage numbers?

  17. Michael says:

    Wolff – I think it’s import to note that total transaction volume on the card networks (and maybe you have a source on personal loans, etc) continued upward trajectory throughout Covid. To your point – I think people kept spending, but paid off those high interest products right away.

    • Wolf Richter says:

      Yes, and that’s incentivized: Banks collect a fee from merchants for each credit card transaction (usually 1-3%), and merchants pay the fee because they save money by not having to handle cash; and then the bank kicks back 1% or 2% in cash or loyalty points or whatever to the card holder. So if I spend $1,000 a month on my credit card, I get $20 cash back, and then I pay off the card every month, and never pay fees or interest. Many things you cannot buy without a credit card, such as online purchases and travel services. This has nothing to do with debt; it’s just a payment system that has replaced cash.

      • SoCalBeachDude says:

        Actually, you can use debit cards online in lieu of credit cards.

        • Wolf Richter says:

          Sure you can. But you’re a reckless idiot if you do (unless it’s a prepaid debit card) because a debit card links directly to your bank account and doesn’t give you the same protections that a credit card does. So if you want your bank account cleaned out, go ahead.

  18. BigrigEv says:

    The dip was caused by reifis because of low interest rates. Then people pull the equity out of their homes like ATM machines. Since interest rates have gone up, no more refis. The consumer is done, they are back to credit cards.

    • Harrold says:

      None of that happened.

      • cb says:

        Just because you didn’t see it doesn’t mean it didn’t happen. Lot’s of people refinanced with the low interest rates during early covid. They reduced their monthly payments.

  19. Bubba says:

    Is it “smart” to replace credit card debt with mortgage debt? Absolutely not. The rates may be lower, but cards are unsecured. The worst that can happen in a card default is the bank sues you and gets a judgement. Default on a mortgage, and the bank takes the house and comes after your other assets in recourse states. In addition card balances are usually minuscule compared to mortgages. A housing downturn will put many of the cash out refi-ers underwater without scuba gear. Financial irresponsibility-the American way.

    • Anthony says:

      The question, at the moment, is do you feel richer or poorer and are you scared. At the moment I get the feeling , especially here in Europe is people feel poorer. Not only that, it’s clear that many people, on both sides of the pond, feel totally scared. When people feel not just poor but totally scared then they hunker down and get ready for war (not the fighting type) It doesn’t take much to scare them. Walk through any supemarket in the USA and you will see items missing that have always been there. Gaps on supermarket shelves scare people whether it is a true shortage or not and there are massive gaps at supermarkets.(food section) It’s also clear, that rich people and poor people use credit cards and may max them out but scared people don’t.

      • Escierto says:

        Our supermarket is better stocked than it was during the pandemic but it never really returned to normal. At times some products are missing completely or in short supply.

      • Augustus Frost says:

        Going by the credit markets and stock prices, Europeans haven’t been infected with manic psychology to the same extent as the US.

        QE facilitated the third leg of the current US manic stock market mania, but it didn’t do the same thing in Europe (including the UK) or Japan. China hasn’t done QE, but outstanding credit increased a lot more since 2008, just not into the stock market.

  20. Sams says:

    Americans turning to debit cards?
    A question that may have relevance, is the balance between payments done with credit cards and debit cards changing? If more people switch to use debit cards for payment the revolving credit may shrink.

    Around here people used cash, then cash and paper checks before debit cards replaced the checks. And now the debit cards have mostly replaced cash.

    Credit cards on the other side have not had a large share in payment transfer. With low revolving credit as an result.

    • Wolf Richter says:

      Sams,

      It’s not a good idea to use debit cards for payments because they’re directly linked to your bank account and may not carry the same protections as a credit card (for US cards). Instead of using debit cards, you should use a credit card and pay it off every month and collect the 1% or 2% cash back.

      A credit card is two things:

      1. It’s just a payment system that has replaced cash. And the user gets benefits, such as rental car insurance, cash-back (1-2%), etc. The merchant pays a fee for each transaction, but saves the costs of having to handle cash.

      2. If you don’t pay it off every month, it’s a borrowing system, as the bank starts charging interest on the unpaid balance, a lot of interest.

      • CreditGB says:

        Pay attention to Wolf’s advice. Bank account linked debit cards are a danger to your account. And, #1 and #2, are the best advice going!

        Auto pays and on line purchases are on two cards (no others, and no store cards), both of which are paid off monthly, no interest.

        • Sams says:

          The extra security with a credit card is mostly that you have time to contest the payment before it is done. If the credit card company dismiss the contest you have to pay.

          I do not know if merchants here at all offer the possibility of auto pay from a credit card.

          With online banking auto pay may be used less too, the monthly bill will show up for approval when you log on to the bank. And you get an email or text message to notify about new bills.

      • Sams says:

        Different places, different customs and regulations.

        For internet purchases credit cards do offer another layer of security. If the credit card provider is not associated with your bank and there is no pre-approved auto debit in place.

        If credit card is associated with the bank account or a pre-approved debit in place there is no big difference. A credit card is then linked to the bank account as is a debit card.

        Actually, a clearing company like Klarna may provide more protection than a credit card when shopping online.

        Any store you walk into there is no difference if paying cash, debit card or credit card.

        Cash back start to appear, but most retailers tie those to their “membership” or whatever customer sticky fly paper the merchants have. Credit card do offer different insurances, mostly already covered by other insurances people have or by the like of rental car companies.

        There was a row between merchants and the credit card companies as some merchants charged the customers with the cost difference between debit cards and credit cards. Settled some years ago, but the merchants do not push credit card purchases, due to the cost. The merchants save money by not having to handle cash, but where the credit cards charge 15 to 2%, the debit card providers charged less than 1%. And there might be a time part, debit card payments are usually cleared within a few hours.

        Paying rental cars and hotel rom is mostly the costliest purchases to be made with credit cards.

        Any more costly purchase the merchant will insist in a different form of payment that cost them less. Like debit card or bank transfer

      • Wisdom Seeker says:

        I think this advice may be outdated. All least some banks have modified their debit card systems to compete for the credit card business. I haven’t gone shopping but I know about debit cards with fraud protections comparable to those of credit cards, cash rewards and so on. So you can get all the benefits of Wolf’s point (1), without having to worry about paying off the monthly balance (2) since there never is one.

        Put another way – a modern debit card can act just like a credit card that auto-pays itself every day from your bank account — rather than waiting a whole month to hit you with the bill in the hope that you won’t be able to pay in full and will have to pay interest.

        In the old days, another argument for the credit card was that you could hang onto the cash and earn interest on it for a month, until the payment was due. Nowadays banks don’t pay interest, so why wait to pay?

        And then you’ve got people who have Apple Pay (or whatever) on their iWatch (or whatever) and they just wave their arm at the transaction terminal and walk off with the stuff they bought. The extra layers of security of these newer payment might mean that you don’t need a credit card at all anymore.

  21. doug says:

    And I did RTGDFA, but does revolving credit include the currently vogue buy now pay later transactions?
    Thanks.

    • drifterprof says:

      If bought with a credit card, it’s revolving credit until it’s paid. Doesn’t matter if it is paid later.

      • Publius says:

        If I’m reading Doug correctly, it is a question I have as well: are store-provided ‘6 months same as cash’ transactions captured in credit card data provided in the charts?

  22. Biggie says:

    Wolf,

    I think BNPL is a cause for the growth in revolving consumer credit. Even apple thinks it’s a great ideal with Apple Pay. Here in Oz it’s a huge business and they’re unsecured loans and we don’t define BNPL as credit… yet.

    • Wolf Richter says:

      WHAT GROWTH???

      RTGDFA

      • BillyGoat says:

        To answer my own question below and others I have seen, it looks like “According to Precedence Research, the global buy now pay later market size was reached at US$ 125.09 billion in 2021. The people can use buy now pay later to make purchases online and in stores without having to pay the entire amount up front.”

        At 125.09 billion it’s only a very small slice so basically irrelevant. I think many wondered is this number just not included in “revolving credit” which many were thinking of the “Wolf must be wrong” hypothesis. Shame!

        • Wolf Richter says:

          BNPL was the original consumer credit, long before there were credit cards. This is NOT new. It has been offered all over the place, by companies that let you make a purchase on installments. What’s new is that some high-flier startups have gotten into it, and that Wall Street has figured out how to securitize this stuff. Apple is offering installment plans now too. I think AT&T has long been offering installment payments when you buy your iPhone through it. Apple is just trying to keep up, maybe. Nothing new here. I don’t know if the balance that you cited is up or down from years ago.

          This type of credit, as far as it can be captured by the data, is part of the green line in the bottom chart.

        • BillyGoat says:

          Thanks for your reply Wolf. I used to work in the underwriting department of one of these high flying companies doing AI BS. The AI boils down to is x < FICO < y? Loan!

          One thing I noticed over 2020-2022 is the steady average increase of FICO scores which reached a high point recently. Always thought it was interesting.

        • Wolf Richter says:

          Yes, FICO scores increased because delinquent loans in forbearance (mortgages, student loans) didn’t count as delinquent, and because people used their stimulus money to get caught up on their credit cards. This has been a fascinating phenomenon because it created misleading signals about the future credit worthiness of the borrower.

          My understanding is that this is one of the reasons why lenders have started experimenting with alternate methods to FICO.

  23. Gabby Cat says:

    Huh! That means the trillions in debt American citizens own the majority is wrapped up in housing, autos, and student loans. MSM had a hit piece stating that Americans owe more then double what they bring in yearly from income. I wonder if they could narrow the factors to only include those using working wages to buy on credit – what the true numbers are in regards to mortgages, student loans, and autos. Is that type of data available?

  24. unamused says:

    Wow.

    A Trillion in CC debt.

    With an average rate of 16.45%, that amounts to nearly 200 billion a year in bank revenue, depending on how want to quibble about it. No wonder the FIC went in for debt peonage. You guys are extremely profitable. And more easily baited than the fish. And rates are going UP. That will make you even MORE profitable.

    As wages have gone stagnant people have found it necessary to be reliant on debt to purchase the artifacts of middle class living, and as the middle class standard of living has fallen, people simply cannot give up on this path and have borrowed their way up. And so, since 1980, CC debt alone has increased over five times faster than household income. I’m sure all this is significant somehow.

    Never underestimate the neurotic human need to feel ‘special’. Your creditors don’t, and neither do the world’s marketing departments.

    Wage slavery, debt slavery. Next up: rent slavery. The rentier class loves it!

    • drifterprof says:

      “…since 1980, CC debt alone has increased over five times faster than household income.”

      Petunia mentioned above that before 1970, “credit was widely available but more local. Credit cards simply make credit easier to use and track.”

      So although CC debt increased five times faster than household income, some of that was transfer of local debt to CC debt.

      A central theme of a book I’m reading (Debt: The First 5000 Years) is that in historical human social environments, local debt (tabs, credit systems) was the natural monetary system (not Adam Smith’s capitalism cornerstone of “trucking and bartering” naturally leading to coinage).

      So religions may have been much more genuine to stand firm against usury. Once credit and debt become non-local, the mega-sharks gobble up the minnows.

      • unamused says:

        “in historical human social environments, local debt (tabs, credit systems) was the natural monetary system”

        Your barkeep and your bookie don’t charge usurious interest, unless they’re in Palermo, if they charge interest at all. Equating the historical system to the present system constitutes the False Equivalence fallacy, so if you were attempting to prove a point, you failed.

        “Debt: The First 5000 Years”

        Did you read the part about how debt jubilees (יובל) were once common, and why they were essential? These days you have bankrupty courts instead because so far they’re way better for the bankers. Well, not you personally.

        I owe a debt to Asclepius. He doesn’t charge interest.

        • drifterprof says:

          “Equating the historical system to the present system constitutes the False Equivalence fallacy, so if you were attempting to prove a point, you failed.”

          That’s a really ugly straw dog.

          “debt jubilees”

          Seems like lightweight pseudointellectual repartee to not know that these “debt jubilees” were mainly for reinstating the original tribal owners that had eternal rights to the land, even if they lost it through incompetence and irresponsible debt. And the jubilees did not apply to commercial debt.

          However, the one thing that I love about those jubilees was the mandatory freeing of slaves.

      • Harrold says:

        Adam Smith was very surprised that native Americans in the New World did not use coins or precious metals as money. They had no use for money.

        • VintageVNvet says:

          plueeeezzze H:
          first peoples everywhere, including far shore every single first peoples used ”whatever” as money
          pretty pebbles,,, rare seashells,,, etc., etc.
          there are very clearly many many instances with many many ”names” for those ”moneys”

    • phleep says:

      A trillion in CC debt.

      Yeah, but how much is over 30 days, i.e., subject to the high rates you cite? Plenty of it might be under 30 and paid every month, right?

      • unamused says:

        Um, no. If it’s paid off, it’s not debt. The graph refers to debt carried on which interest in paid.

        You can buy a lot of yachts with a trillion dollars. Well, not you personally. You’ll be buying them for somebody else.

        • Wolf Richter says:

          There is a distinction between interest-accruing credit card balances and non-accruing credit card balances. This data here from the Fed is all of it combined. The non-accruing balances are those that get paid off every month, but they’re still “credit” (debt) until they’re paid off. There is a lot of discussion out there about separating the two in the reporting, but it hasn’t happened yet. There is some other data on interest-accruing balances only that I have run into, but I have not seen it regularly reported.

          So when people spend more money than before and then pay it off a few weeks later, that increase will show up, but since it doesn’t accumulate it’s not a huge portion of the total. But it’s significant enough, and I would like to see it separated in the reporting.

    • Wolf Richter says:

      unamused,

      1. About $840 billion are credit card balances, some of which get paid off every month and don’t incur interest. The rest is other revolving debt. See the bottom chart. So redo your numbers.

      2. “As wages have gone stagnant…” Nonsense. You haven’t paid attention. Average hourly earnings of non-management workers in all industries combined jumped by 6.5% from a year ago. Beyond the distortions in 2020, the past six months were the biggest year-over-year jumps since early 1982:

    • cb says:

      @ Unamused –

      I think rent slavery is already with us in California.

      Three or four years ago I knew a couple paying $3500 per month for a one bedroom apartment in a 1928 building in a decent part of San Francisco.

      Yesterday I was talking to couple that $2400 per month for a one bedroom apartment in a large complex in Woodland Hills.

      These were both young couples living in the cheapest they could find in a low crime neighborhood. Not luxury in either case, though the Woodland Hills property is one of those mega sized projects with pool and jacuzzi.

      You see tents all over the place now. One answer to high rents.

    • GrassRanger says:

      Una: “With an average rate of 16.45%, that amounts to nearly 200 billion a year in bank revenue, depending on how want to quibble about it.”
      My quibble with your figures is this: My bet is the total interest earned on that trillion is much less than your estimate because of the number of cardholders who pay off their cards every month and incur no interest costs.

  25. Citizen AllenM says:

    I think one of the reasons for the decline in credit card utilization is the extreme management of the bottom half by the credit card companies. Everyone who busts out of their credit cards essentially gets locked out of the system and into the bad credit ecology.

    The common person does not have a hundred thousand of available credit anymore. Remember how houses used to get financed through credit card advances? Casey? LoL

  26. WolfGoat says:

    I guess we may be getting more financially responsible as a society. Hard to believe, but maybe not! Now if we could just get the Gov’t to follow suite!

    How much equity do U.S. homes have?
    Nearly one in two U.S. mortgaged residential properties—42%—was considered equity rich (meaning that the combined estimated amount of loan balances secured by those properties was no more than 50 percent of their estimated market values) in the fourth quarter of 2021. That’s up from 30% in the same quarter of the previous year.

    The Bottom Line
    The average amount of home equity in the U.S. is at a record high. The average mortgage holder now owns $185,000 worth of equity, and this increased by almost $48,000 in 2021. This rapid rise was partly driven by increased house price valuations over the same period.

  27. Brant Lee says:

    “14 years of population growth and 40% CPI inflation.”

    That’s what I’m trying to let set in. 40%!! Sounds a little hyper to me,

    And with little to nothing interest paid on savings accounts during this period. Why don’t we just go ahead and sign over all our assets to the politicians and banks in one swoop and get this over with?

    • phleep says:

      So, housing has been a good hedge against inflation. In 14 years the market value of my house has more than held against inflation. Not a guarantee for the future, but it isn’t, and wasn’t, rocket science. That’s why we old fools do things like buying houses.

      The trick with such an illiquid asset is a good buy-in price. That requires disciplined, smart cash management before the opportunity arises. All this is nothing new. I was barely a teenager when the last raging inflation cranked up.

      Anybody can wander into the casino and throw money at floating dream palaces of digital assets, build the future, blah blah. but if my balance sheet is the beta test, the crash test dummy for that, sorry, no thanks.

  28. Jdog says:

    Like everything else, credit has to be looked at in total. Not just the level, but the rate of increase, increase in interest rates, and what the credit is being used for.
    To make the case that the credit situation in the US is not serious is not honest. Not only is the average consumer far over their heads in debt, they are increasingly using debt to purchase consumables instead of assets.
    In the event of a major economic downturn, the assets they do use credit to purchase will also be at risk. A culture of debt existance has a downside that few today have ever seen.

    • WolfGoat says:

      And if they are (or maybe have been) financing that debt by refinancing their houses at elevated prices, what’s going to happen when said houses go underwater because the price has dropped out. Shades of 2008 all over again?

  29. Bill Karrer says:

    How about just paying with “cash” and not having any debt? It has worked for us for several decades now. I know, most will ignore and call me arrogant, or something along those lines. It’s OK, because all those lenders depend on you.

    • Wolf Richter says:

      You can pay with a credit card and then pay if off every month, and there are no fees, and you might get a 1% or 2% cash kickback from the bank. You’re essentially paying cash but are using electronic means. Lots and lots of people do that, including for purchases online, travel services, etc. where you cannot pay with paper dollars.

      • Bill Karrer says:

        Notice I had cash in quotation marks. Don’t use credit cards but do use debit cards and things like PayPal, online pay, direct bank transfers, autopay and yes, plain old “greenbacks”.

    • El Katz says:

      Paying cash with greenbacks can be an effective way to teach young people how to budget and restrain impulse buying that often occurs at the checkout counter.

      When my kids initially were given credit cards when they went to college (small limits to control the carnage), they got into all kinds of situations and that behavior extended into their young adulthood.

      As an exercise, I encouraged them to pay cash at the checkouts rather than swiping a piece of plastic that has no relationship to their income…. it just goes through and that’s it. Once my daughter had to peel off a $20 bill to pay for some useless junk, she thought long and hard about what it took to earn the $20 bill vs the true benefit of the object of her desire provided. She could then make a value judgement – often the item went back as there was then an established relationship between her labor and expenditures.

      It worked fairly well, as she is fiscally responsible and plans her financial activity.

      My son? He married well…. and has a wife who gives him an allowance to control his binging.

      We never used credit cards for daily transactions, beyond pumping gas, up until a few years ago. We either paid cash for incidentals or wrote a check for groceries and the like. Now we just slap everything on the 2% cash back credit card and write one check per month for the balance. We have a “scrap” credit card for online purchases to avoid getting our main cards compromised.

  30. joe2 says:

    A sideshow to what is really going on. OK, play with your little slips of paper. Paper gains, paper losses how exciting.

    The loss of rights, rule of law, morality, and sovereignty is the real tragedy.

    • unamused says:

      All too late people realize that their friends and family are their only real treasure.

    • Bobber says:

      Excellent observation. Central bank policies promote wealth concentration and generational theft. They have removed nearly all trust in society.

      Speculation, short-term thinking, and moral hazards have been encouraged by our economic “leaders” for several decades.

      • drifterprof says:

        Intelligent people lost trust in “society” way before the central bank policies that promoted wealth concentration.

        Because after WW2 it was American warmonger global hegemony neo-imperialism.

  31. CreditGB says:

    A fairly narrow question with regard to this topic:

    Of what possible value are “seasonal adjustments”? Can’t people deal with actual numbers to make decisions or get info? It is a simple matter to smooth out the daily, weekly or monthly actuals if the spikes and valleys annoy someone’s analysis attempts. I’d rather do my own thinking and analysis based on actuals.

    Seasonal Adjustment seems to me to be a real open door for data manipulation to alter results.

    • Wolf Richter says:

      Excellent question. No answer from me :-]

      There is one place where I like seasonal adjustments, as long as I’m also looking at the non-adjusted data: monthly retail sales, esp in very seasonal categories of retailers, such as department stores. Department stores can show a drop of 30% from December to January. And the chart gives you a headache. But if you report on a quarterly basis, there isn’t even any need to seasonally adjust those. It’s only an issue with monthly data.

  32. BillyGoat says:

    Hey Wolf Nice Article.

    Does this revolving credit include some of the BNPL companies out there like Affirm?

    • Wolf Richter says:

      BNPL has been around forever. There is nothing new. Big companies have specialized in it for many years. There were always companies that would allow or encourage you to buy it on an installment basis. This was the original consumer credit. I still see it. There is a little bit of a twist now in that there are some high-flier startups with now imploded stocks that have gone into it, and that someone on Wall Street figured out that you can actually securitize this stuff and investors “were” willing to buy it. That Apple is making this available is also new, but I think (from memory here) if you bought your iPhone from AT&T, AT&T would give you the option of installment payments. I don’t see this changing the numbers in any way. It’s an ancient system that has been plugging along.

      • Morbaine says:

        I should have read all of the comments before I made my BNPL comment up above.

        The part that blew my mind about the recent BNPL boom is that the latest Fintech versions popping up everywhere are not subject to TIL and use a soft hit, not a hard hit to your bureau.

        If the rising rate environment and/or consumer stress doesn’t blow the BNPL fintechs up, I’m guessing Congress will regulate them out of existence.

  33. Seen it all before, Bob says:

    Maybe people are finally realizing that paying 25% interest on a credit card balance is not a wise financial decision. Payday loans or borrowing from the mob are the only things that are worse.

    Given that, I think credit cards are a wise choice if paid off on time.

    1) Convenience. – A dual edge sword. I would spend less if I had to pay
    with cash.

    2) Consumer protection. – You can contest any purchases that weren’t
    delivered.

    3) 1%-5% in rebates on most purchases.

    4) Purchase tracking with itemized statements to help determine budgets.

    5) A better credit score if balances are paid. An excellent credit score can get you lower mortgage rates, get you into a better/cheaper rental, waive deposits on utlitiies, etc.

    • Seen it all before, Bob says:

      One other benefit that used to be a better benefit.

      6) You are effectively floating money for up to a month for every month. I can leave my cash in a bank account making 0.1% interest until I pay the credit card bill. If I pay cash or with a debit card, this interest is lost immediately.
      Sigh…, this used to be a better benefit when I was making 4+% in my savings account. Some day, maybe soon, this will return.

  34. Andrew says:

    So for the last 30-40 years banks transitioned from lending money to providing credit?

    To clarify, what I’m saying is the old savings and loan model of loaning out a percentage of my savings does not happen now, hence my saving account rates are not going up with other interest rates. The banks earn money off of fees and credit interest instead of fees and some interest from lending out my money. They’ve primarily cut giving any interest to savers and keep more interest payments for themselves by charging interest for credit.

    I get when they create a mortgage they create money, but it is not the same as taking $10,000.00 from 20 consumer accounts and lending it out for %7 and getting fees, 3% for themselves and 4% for the consumer whose money was lent. It seems banks get fees and the full 7% now.

  35. David Haggith says:

    You do lots of great work, Wolf, so I quote you a lot; but I think you’re missing the operative point on this one. I would agree that consumer credit poses a big problem as in it’s about to implode, but I think its importance is in showing the consumer is no longer flush with cash or in good shape. Total use of credit is not maxed out, but its rate of rise is beyond anything we’ve ever seen!

    At the same time, the savings rate is lower than it has been in, at least, two decades … and that includes the savings being tucked away by the fabulously wealthy as part of the average. So, the true average person, not the skewed statistical one, but the typical person we would expect to meet out on the street, probably is putting away next to nothing right now because he or she can’t. At the same time, their stock and bond portfolios have been worse than decimated, so they’re quite unhappy about what is happening in their retirement funds and not in any position to use any stock wealth they might have accumulated off those stimulus checks. That’s been largely destroyed already.

    So, the fact that the level of credit is now rising so rapidly, shows how much things have changed and are continuing to change. The rate of rise is what is important in assessing the consumer’s health. They are not in danger of defaulting (which high balances would show), but clearly are now piling up credit at the fastest rate in history. Checking accounts are lower while saving isn’t happening at all.

    Reliance on credit is returning, and the government’s or the Fed’s references to seasonal adjustments are beyond silly when talking about monthly balances. Stacking seasonally adjusted monthly uses of credit on top of each other, as you point outs, shows the useless distortions that would happen if you did use seasonally adjusting numbers to show running balances. Balances are what they are — an accumulation from many seasons so there is no seasonal adjustment to be made.

    Credit balances spent the last year climbing straight up a skyscraper. The top is not as revealing as how reliant people suddenly are on using credit. They haven’t maxed out their available credit, so they have still gave room to run; BUT they are tapping into credit at the fastest rate of climb in history … or least, recent history. That is of major significance in assessing their financial health based on a return to rapidly expanding their use of credit to maintain purchases in this high-inflation environment. The rate of rise is even greater than we saw in 2007.

    Savings rate at lowest point in history; expansion of consumer credit at fastest rate of rise in history does not equal a strong consumer of healthy economy. They have room to run in how much credit they have available, but they are clearly reliant now on using it and using it quickly.

    • David Haggith says:

      Oops. I meant to say, “I would agree that consumer credit does NOT present a big problem …”

      but the sudden steep rate of rise is indicative, along with other signs of consumers becoming tapped out in terms of cash, though not at risk of defaults or at the top of their available credit. Just the bottom of their bank accounts.

  36. Poor like you says:

    Do they collect these revolving credit statistics in one lump group, or is it ever broken up by household income bracket (I hope that’s the right term)? For example, do these charts look different for the bottom 50%?

  37. Trixster says:

    Wolf,

    I do like the charts your provide to support your points. However, the charts provided do not make it clear to the reader and requires them to have a good understanding.

    “In other words, revolving consumer credit was roughly flat with 13 years ago, despite 13 years of population growth and 40% inflation. In real terms and per capita, it has become a sideshow.”

    I have included a link to revolving debt adjusted for inflation and working population. This is the average revolving debt per potential working adult adjusted for inflation. It shows that we are at same levels as 2014, juts as you have stated in your article.

    This does a better job of illustrating your point.
    https://fred.stlouisfed.org/graph/fredgraph.png?g=QkLf

  38. Trixster says:

    Sorry about the 2nd post, I updated the chart to be in dollars instead of billions of dollars.

    Looks like the average revolving credit debt is ~$5,200. It was $7,000 at the 2008 crash and $6,000 during the 2000 crash (adjusted for 2022 dollars).

    https://fred.stlouisfed.org/graph/?g=QkNn

  39. Not Sure says:

    “Consumers have gotten a lot smarter since the Financial Crisis.”

    I don’t think so. Consumers are as dumb as ever. Human beings are opportunists, and if they’re given easy access to low-interest debt, they’ll take it. If they don’t have access to low-interest debt, then they’ll turn to credit cards, loan sharks, or contracts on their first born. Whatever it takes to keep up appearances. Overall debt growth has been been strong despite a long pause in mortgage payments, rent, and student loan payments for many people. Consumers are saddled with more debt than ever, just not via CCs.

    A smarter consumer doesn’t borrow against their home equity to buy rapidly depreciating junk and non-value added services. But that’s exactly what the consumer has done in this most recent era of the cash-out refi. They’re also building debt by wildly overpaying for vehicles, causing auto loan balances to explode despite low sales volume.

    The pandemic drawdown of revolving debt was artificial, entirely fueled by stimulus and moratoria. And now that mortgage refis have hit a wall and moratoria have largely been lifted, surprise surprise… We see CC balances bouncing right back as quickly as ever.

  40. Spencer Bradley Hall says:

    Personal interest payments (B069RC1) seem to confirm Wolf’s point:
    https://fred.stlouisfed.org/series/B069RC1

  41. Cookdoggie says:

    Good discussion and article. Wolf’s point is consumers found other ways to fund spending than revolving credit. I agree in 2020 and 2021: stimmies and cash out refi. That combined with lower spending from lockdowns. Ok, but all of that is now gone. It absolutely is appropriate to look at the graph from the trough in 2021 thru today, that’s the trajectory that will continue, the current trend.

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