In the U.S., at least, debt is no four-letter word.
The $1 trillion level has been attained for credit card debt within the country, with that level not seen since early 2009, when the shockwaves of the financial crisis first were felt.
That level of debt, estimated by the Federal Reserve as the amount outstanding at the end of February, is up a bit more than 6 percent from a year ago and up 30 basis points from January. And it joins other hallmarks of borrowing crossing the $1 trillion threshold, a pantheon that includes student debt and auto loans. Those two subsets of lending hit their own respective $1 trillion levels over the past few years.
The Wall Street Journal noted that the numbers show an increasing adoption of household debt, which can be viewed as a “positive sign” for the U.S. economy amid spending on sundry items that typically are charged to accounts.
The WSJ stated that “the big question” remains just how long such activity, defined as “this bullish streak in consumer debt” can keep up. Unemployment is low. But rates are also coming off of lows, prodded upward by the Federal Reserve, a possible dampening effect on borrowing – but no one knows just where, when or what level of interest rates will mark that dampening.
There are also some indications that losses may start to accrue to at least some loan books, even even though recent data show that most payments across debt in general (at 10 percent of disposable income) are being made in a timely manner, boosted by income gains and low unemployment. Missed payments on credit card debt, specifically, are on an upswing, albeit from historically low levels and as noted by the WSJ, subprime auto loans and personal loan delinquencies are also gaining ground. Against a backdrop of rising rates, with attendant monthly payment boosts, it might not be too far-fetched to think that delinquencies will also get a boost. As quoted in the WSJ, Nobel Prize–winning economist Robert Schiller stated that “we don’t have the flexibility to do the kind of stimulus we did in 2008-’09. And we’ve raised the national debt to a much higher level.”