THE banking crisis that hit them USA last spring – the largest since 2008 – may prove to be a harbinger of greater turmoil that may soon hit the world’s largest economy. According to data from the New York Fed, Americans’ total credit card debt exceeds $1 trillion. dollars, for the first time in history.
At the same time, Moody‘ s states that the rate of Americans leaving unpaid liabilities, such as credit cards and car loans, are the bigger of the last ten years. This is a bell that warns of what may come if the economy does not recover quickly and the terrifying accuracy crisis that is currently plaguing the USA and Europe continues.
The following is perfectly typical of what exactly the current crisis has caused. Compared to pre-pandemic levels and especially to 2019, there are 70 million more credit card accounts in the US financial system today. As a result, the total debt of Americans on credit cards exceeds the level of 1 trillion. dollars.
The late payments car installments are at the same levels as the 2008 financial crisis, and Moody’s believes they will continue to rise until 2024. The situation is even worse in … the reddest loans, those labeled “subprime”. During the 2008 crisis, the percentage of these loans that were more than 60 days past due was 5%, while today it is 7%.
The higher interest rates of the last decades also play their role, as the disposable income of citizens is under pressure from everywhere. Especially for lower incomes, increased loan installments and constant mark-ups on supermarket shelves are making it increasingly difficult to service debts and bringing many American banks – mainly regional ones like those that “exploded” this year – to face the risk of a big wave of bad loans.
Have-nots Americans have tried during the pandemic to put aside what they can from checks and fat government handouts. Now, those savings have been eaten up and punctuality is blowing up family budgets.
As Moody’s notes, the delays in payment of credit cards and car loans, reflect the difficult decision households have to make: to pay their bank debts, various bills or their daily shopping?
It may be that the economy is in a better phase than during its deep recession pandemic and with unemployment at historic lows, but interest rates have sent yields skyrocketing and analysts expect the situation to get worse before it gets better. The average interest rate on credit cards in the US is currently at an all-time high of 20.6%. It’s no coincidence that apps that enable consumers to buy something now and pay for it later are making waves in the US. The use of these services has increased by 40% in the first months of 2023.
One more “headache” pertains to student loans, a very critical aspect of US bank lending. After a pause in payments for more than three years, from October these loans will have to start being serviced again. Estimates call for credit card, car loan and student loan delinquencies to rise further towards the end of the year, when the system’s resilience will be tested. Because households will also have to pay the increased energy bills during the winter months.
