While the White House lectures about the strength of the economy, Americans are drowning in credit card debt, which reached a record $1.13 trillion by the end of last year.
Of course, Americans are unhappy with the economy. We have to pay for necessities on credit cards that are charged $240 billion in interest every year. How we got here is a lesson in failed government policy.
Excessive government spending over the past four years has created a veritable cost-of-living crisis, leaving families mired in debt. As governments spent, borrowed, and printed trillions of dollars, the value of the dollar decreased, causing inflation. Every American's paycheck and savings could lose value, leaving them with less to buy.
From January 2021 to June 2022, real (inflation-adjusted) average weekly earnings fell by 5.1%. As of January 2024, three years after President Biden took office, real profits were still down 4.4%. The real value of a typical American family's weekly wage decreased by $85 over that period, even though it increased by $270.
>>> You can ignore the rising federal debt, but you'll be paying the price.
With 60% of families living paycheck to paycheck, many have had to take second or even third jobs to make ends meet. While it increases salaries and makes monthly employment statistics look great, it's actually a sign of poverty, not wealth. Many families also fell into debt and relied on credit cards to pay for necessities like rent, groceries, and utilities.
This leaves nearly half of Americans unable to pay for their purchases at the end of the month, and credit card balances have soared to an all-time high of $1.1 trillion. And it's not just a temporary spike in borrowing due to Christmas shopping a few months ago. In fact, a quarter of cardholders still have debt from their 2022 holiday shopping.
becomes terrible. Many Americans accumulated debt on credit cards when interest rates were at or near his 0%. With the end of these introductory offers and the rapid rise in interest rates over the past few years, credit card financing costs have shattered all-time records.
The combination of record-high credit card balances and interest rates means Americans are now paying $240 billion a year in interest alone before paying off a penny of their outstanding balances. This will incur additional costs on top of the already stratospheric increase in their cost of living.
Sadly, many families find themselves in a debt trap and cannot afford to pay for existing expenses, let alone additional financial costs. Not only do they have to pay today's bills, but they have to take on more debt to pay the interest on yesterday's loans. It's a downward spiral that ends in disaster.
Runaway government spending is delivering a one-two punch to household finances, as today's interest rate hikes are a response to the highest inflation in 40 years. It causes inflation, which makes borrowing necessary and making that borrowing more expensive.
>>> Biden's low rating on the economy reflects reality
However, the damage caused by the government is not only external but also internal. The federal debt has jumped by about $6.5 trillion since January 2021, to an eye-popping $34.2 trillion. Taxpayers currently pay more than $1 trillion a year in interest on their debt, which is more than 40% of all personal income taxes.
It's not about fixing roads and bridges, funding schools, maintaining airports, or funding the military. It's just paying off a debt.
Last year, I predicted that interest would consume a record percentage of the economy by 2025, and the nonpartisan Congressional Budget Office just agreed with that prediction. Politicians are racking up so much debt on the nation's credit cards that interest will soon become the federal government's biggest expense.
But politicians can rely on the Federal Reserve to generate more money. American families don't have that luxury. Instead, that money creation causes further inflation, and families find themselves back on the hamster wheel, working hard but falling further behind.
This is key to understanding why Americans view the economy so unfavorably in public opinion polls. Over the past three years, we have regressed financially, even though our salaries have increased.
This situation will continue if Washington maintains its profligate behavior. Every time the federal budget increases, household budgets decrease.
