- Personal and national debt are reaching epic, dangerous proportions
- Unchecked debt could drive the economy into deep recession
- Americans are protecting their assets from the consequences of runaway debt with Gold IRAs
Debt Skyrockets
Personal and national debt are both on a dangerously sharp upward trajectory. As auto loan and mortgage delinquencies rise, credit card delinquencies skyrocket. At the same time, Wall Street leaders are loudly calling for action on an unfolding national debt crisis. The unchecked debt of citizen and nation threatens to undo both.
Credit Card Delinquencies Hit New High
Americans are turning to their credit cards to pay for sky high prices. Now, the New York Federal Reserve data show a growing number of Americans are falling behind on their credit cards. Considered a sign of worsening financial distress, credit card delinquencies are at a 3-year high. Delinquencies have surpassed pre-pandemic highs. They rose from January to March and continue to go up.
The percent of balances in serious delinquency is at its highest level since 2012. The Fed admitted they don’t know exactly what is behind the increase in delinquencies. One theory is that excess savings are gone. And though the job market looks strong, Americans are losing their jobs and then getting new ones at a lower salary. However, nonstop inflation is the likely prime candidate. Cumulative inflation on necessities like food and rent is over 18%.
1
Achieve is a digital personal finance company. Their survey showed the main reasons were inflation and a reduction in work and income. It cited high interest rates as making it harder to pay down debt. A quarter of consumers reported reducing their spending over the past three months. That doesn’t bode well for this economy, 70% of which is based on consumer spending.
Economists are worried because the rise in credit card usage is coming when interest rates are astronomically high. APR hit a new record average of 20.72% last week. Rates are high because of the Fed’s aggressive policy to try and tame inflation. 2
Household debt rose $184 billion the first quarter of this year and is now at $17.69 trillion. One in five credit card users are dubbed “maxed-out borrowers” because they used at least 90% of their available credit. One third of this group has gone delinquent in the past year.3
So Goes the Nation
As personal debt is wreaking havoc on individuals, the national debt is putting the country in crisis. The national debt recently surpassed $34 trillion. It is on course to exceed $45.7 trillion within a decade. That is more than 110% of the gross domestic product.4
Interest payments are the fastest growing segment of the budget. Interest on the debt has almost doubled to $659 billion in 2023 from $345 billion in 2020. The US has hit a worrying milestone. In the first seven months of this fiscal year, interest payments on debt cost taxpayers more than what we spend on defense and Medicare. Only Social Security costs more right now. But in less than 30 years, paying interest on the debt might become our biggest expense. 5
High interest rates are making the problem worse. As the debt reaches unsustainable levels, it will contribute to a negative cycle of even higher interest rates. Social Security and Medicare, the untouchable ‘third rail’ of politics, will see automatic cuts in the coming years if the government doesn’t act. All retirees would face a 21% cut in Social Security benefits in just nine years. Medicare will face similar cuts in 12 years. 6
The Government Non-Response
Goldman Sachs CEO David Solomon said the US policymakers need to focus on the ballooning national debt. He warned that the government’s “ability to spend without constraint is not unlimited.” “Ultimately,” he said, ” the market will challenge” the federal government’s free spending ways. 7
The Biden administration does not seem to be heeding such warnings. Biden unveiled a record $7.3 trillion election-year budget. It increases social spending while taxing businesses and high earners.
“Continuing to ignore these warnings puts beneficiaries at risk, creates economic uncertainty and adds to our fiscal challenges,” Michael Peterson, CEO of the Peter G. Peterson Foundation, said. “In fact, we haven’t been this close to the depletion of Social Security since the last bipartisan reforms done in 1983.”8
A Republican proposal for a bipartisan commission about the debt is dead in the water. Proposed over six months ago, it collapsed from left-wing fears of spending cuts and right-wing fears of new taxes. More than 100 Democratic lawmakers signed onto a letter opposing the commission.
Conclusion
Debt on a macro and micro level is posing a grave threat to individuals and the country. Both are sinking into a debt spiral where mounting interest payments and continued borrowing choke off beneficial spending. The mirror results of which end in a deep recession. And unfortunately, no one is taking measures to solve either problem. The bill for Americans and America is coming due and it looks like it is going unpaid. Economic volatility and recession are likely to follow. People interested in protecting the value of their retirement funds are investigating the benefits of physical precious metals. In particular, a Gold IRA is designed to safeguard funds from the consequences of runaway debt. Contact American Hartford Gold today at 800-462-0071 to learn more.
