Consumer credit barely grew in April as March revised negative; spending went negative. Household debt hit $17.7 trillion. Defaults climbing.

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Total consumer credit growth in April paints a misleading picture. It only appeared positive because March was revised down into negative territory, exposing a lot of red in the ledger. The reality is sobering: consumer spending went negative in April after adjusting for inflation, coinciding with a shrinkage in revolving consumer credit, such as credit cards. It seems the consumer has hit the wall, signaling the end of the debt binge.

Caution is warranted. The credit card default rate for small banks has skyrocketed to 7.8%, a level unseen since 1991. This could spell disaster. U.S. household debt has reached an all-time high of $17.7 trillion, up by $190 billion in the first quarter of 2024. As a percentage of GDP, it stands at approximately 77%, lower than the 100% seen in 2009, but still alarming.

The categories of debt are staggering:

  1. Credit Card Debt: $1.12 trillion
  2. Auto Loans: $1.62 trillion
  3. Student Loans: $1.60 trillion
  4. Mortgages: $12.44 trillion
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What happened is a clear indication of consumers reaching their financial limits. The implications are vast. A shrinking revolving credit market and negative consumer spending highlight a fragile economy on the brink of a significant downturn. The unprecedented default rates among small banks suggest a brewing financial crisis.

The impact is profound. As consumer credit dries up, spending will likely contract further, exacerbating economic instability. High household debt levels across multiple categories reflect a population heavily burdened, with little room to maneuver financially. The challenges are immense. Policymakers and financial institutions must navigate this precarious situation with caution. The potential for widespread financial distress looms large, demanding swift and effective action to prevent a full-blown economic crisis.

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