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Credit card debt is on a big surge, but let's dig a bit deeper with inflation adjusted numbers to spot what's really happening.

Consumer Credit numbers from the Fed, chart by Mish.

Consumer Credit numbers for April are from the Fed's G.19 Consumer Credit report.

This post was my first cross-post at Deep Knowledge Investments

Nominal Growth Synopsis

• Total Credit: +$23.01 Billion to $4.86 Trillion, a new high
• Revolving Credit: +$13.48 Billion to $1.24 Trillion, a new high
• Nonrevolving Credit: +$9.53 Billion to $1.24 Trillion, a new high

Nonrevolving Government Credit (student loans) is best viewed as essentially unchanged for three months.

Revolving Consumer Credit in Billions of Dollars 

Consumer Credit numbers from the Fed, calculation and chart by Mish.

Real vs Nominal Revolving Credit

• In nominal terms revolving credit surged to $1.24 trillion.
• In real (inflation-adjusted) terms, credit card debt is $980 billion. That is below the per-pandemic high of $990 billion, and also below the 2008 high of $1.09 trillion.
• It's real spending that drives GDP. 

Nominal, as well as real, the slope of revolving credit is steep and unsustainable. It's also a sign of consumer stress. 

Nonrevolving Consumer Credit in Billions of Dollars 

Consumer Credit numbers from the Fed, calculation and chart by Mish.

Real vs Nominal Revolving Credit

• In nominal term nonrevolving credit surged to $3.62 trillion. a new high.
• In real (inflation-adjusted) terms, nonrevolving credit is $2.85 trillion. That is only 1.4 percent above the pre-pandemic $2.81 trillion. 

Who Has Spending Cash?

Anybody with an existing mortgage prior to 2022 was able to refinance at or below 3.0 percent has extra hundreds of dollars to spend, every month, even if they overpaid for their houses. Inflation has eaten up some of that refinance dividend, but it has certainly cushioned the blow. 

Renters and those who more recently took out a mortgage are hit by higher mortgage or rent prices in addition to rising food prices, insurance costs, etc. 

For those whose wages have not kept up with the price of rent and food (nearly everyone), credit cards or tapping savings is the only way to maintain lifestyles.

Three Classes of Zombies 

• Corporate Zombies are firms that are unable to generate enough profits to cover debt-servicing costs and that need to borrow to stay alive.
• Consumer Zombies are those who want to move but cannot because they do not want to or cannot afford to trade their 3.0 percent mortgage for a 7.0 percent mortgage. 
• Consumer Zombies also include those trapped in rental units with no hope of escape. 

The Starter Home Is No More

Zombie renters dream of homeownership but are priced out of secondary cities they might've flocked to years ago.

Case-Shiller Top City Home Prices Decline From Year Ago for the First Time Since May 2012

Case-Shiller and CPI data via the St. Louis Fed, chart by Mish. 

OER stands for Owners' Equivalent Rent, the price a homeowner would pay to rent their own house, unfurnished, without utilities. 

On May 30, I noted Case-Shiller Top City Home Prices Decline From Year Ago for the First Time Since May 2012

However, the decline is but a drop in the bucket compared to price increases since 2011.

Meanwhile, the average mortgage rate is 6.94 percent according to Mortgage News Daily.

Winners and Losers

The Fed created this set of winners and losers, and it did so on purpose to increase inflation. Now the Fed does not know what to do with the inflation mess it created.

Housing generally leads the economy into or out of recession. Think of all the appliances, carpet, cabinets, and landscaping that happen when people buy homes. Also think of household formation and plunging birth rates.

The Fed cannot afford to stimulate housing out of fear of stoking more inflation. And it has stranded three classes of zombies in the wake. 

So don't expect much more than weak, near-recession GDP, if that, for quite some time. It's payback for three rounds of mostly unwarranted fiscal stimulus on top of serial bubble-blowing Fed policy.

More By This Author:

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