The Fed Issues A Warning As Household Debt Hits New All Time High

Tyler Durden's picture

After we first reported last week that US credit card debt hit a new all time high with both student and auto loans rising to fresh records with every new report...

... it won't come as a surprise that according to the just released latest quarterly household debt and credit report by the NY Fed, Americans' debt rose to a new record high in the second quarter on the back of an increase in every form of debt: from mortgage, to auto, student and credit card debt. Aggregate household debt increased for the 12th consecutive quarter, and are now $164 billion higher than the previous peak of $12.68 trillion set in Q3, 2008. As of June 30, 2017, total household indebtedness was $12.84 trillion, or 69% of US GDP: a $114 billion (0.9%) increase from the first quarter of 2017 and up $552 billion from a year ago. Overall household debt is now 15.1% above the Q2 2013 trough.

Mortgage balances, the largest component of household debt, increased again during the first quarter to $8.69 trillion, an increase of $64 billion from the first quarter of 2017. Balances on home equity lines of credit (HELOC) were roughly flat, and now stand at $452 billion. Non-housing balances were up in the second quarter. Auto loans grew by $23 billion and credit card balances increased by $20 billion, while student loan balances were roughly flat.

  • Confirming the slowdown in mortgage activity, mortgage originations in Q2 declined to $421 billion from $491 billion. Meanwhile, there were $148 billion in auto loan originations in the second quarter of 2017, an uptick from the first quarter and about the same as the very high level in the 2nd quarter of 2016.
  • Auto loan balances increased by $23 billion, continuing their 6-year trend. Auto loan delinquency rates increased slightly, with 3.9% of auto loan balances 90 or more days delinquent on June 30. The aggregate credit card limit rose for the 18h consecutive quarter, with a 1.6% increase.
  • Outstanding student loan balances rose modestly, and stood at $1.34 trillion as of June 30, 2017. The second quarter typically witnesses slow or no growth in student loan balances due to the academic cycle. As discussed previously, a perilously high 11.2% of aggregate student loan debt was 90+ days delinquent or in default in 2017 Q2.

In a troubling development, the report noted that the distribution of the credit scores of newly originating mortgage and auto loan borrowers shifted downward somewhat, as the median score for originating borrowers for auto loans dropped 8 points to 698, and the median origination score for mortgages declined to 754. For now this credit score decline has not impacted the credit market: about 85,000 individuals had a new foreclosure notation added to their credit reports in the second quarter as foreclosures remained low by historical standards.

And while much of the report was in line with recent trends, and the overall debt that was delinquent, at 4.8%, was on par with the previous quarters, the NY Fed did issue a red flag warning over the transitions of credit card balances into delinquency, which the New York Fed said "ticked up notably."

Discussing the troubling deterioration in credit card defaults, first pointed out here in April, the New York Fed said that credit card balance flows into both early and serious delinquencies increased from a year ago, describing this as "a persistent upward movement not seen since 2009." As shown in the chart below, the transition into 30 and 90-Day delinquencies has, over the past two quarters, surged to the highest rate since the first quarter of 2013, suggesting something drastically changed in the last three quarters when it comes to US consumer behavior.

“While relatively low, credit card delinquency flows climbed notably over the past year,” said Andrew Haughwout, senior vice president at the New York Fed. “This is occurring within the context of loosening lending standards, as borrowers with lower credit scores recover their ability to access credit cards. The current state of credit card delinquency flows can be an early indicator of future trends and we will closely monitor the degree to which this uptick is predictive of further consumer distress.

That bolded statement, is the first official warning by the Fed that the US consumer is sick, and the Fed has no way reasonable explanation for this troubling jump in delinquencies. Timestamp it, because this will certainly not the be the last time the Fed warns about the dangerous consequences of all-time high credit card debt.

As for the "further uptick in consumer distress", we are just guessing but the fact that credit card defaults are jumping at a time when sales at fast food and other restaurants have declined for 17 consecutive quarters, and when $250 billion in US household savings was just "revised" away, may all be connected.

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Troy Ounce's picture


Debt does not matter

I heard the Gubbermint is going to pay all our taxes.


Haus-Targaryen's picture

Is the Fed can print money, why do we pay taxes? 

Juggernaut x2's picture

keeps the gentiles under control

jcaz's picture

LOL-  Ladies and Gentlemen,  the Fed-  your credit police..........

Remember when the Fed just did what they were mandated to do?


The_Juggernaut's picture

Woohoo!  Let's raise rates in the face of record debt!  Hang onto your cash, folks.  There's going to be some bargains out there.

Kidbuck's picture

No, all I remember is the fed fucking over poor folks by stealing their purchasing power and giving the banks free money. Is this their mandate?

ejmoosa's picture

We should eliminate all the tax collections and just print the money.  I agree.  The rate of inflation will be the implied tax rate for all that hold our currency around the world.

A simple solution indeed.

major major major major's picture

Until the printing needs to occur faster than the speed of light... then we are relatively fucked.

ParkAveFlasher's picture

How could you have 45-55% of the population hating the other 45-55% if you are not having them accuse each other of wasting taxes, if you don't institute the tax in the first place?

Osmium's picture

How are they collecting record amounts of payroll taxes with the labor participation rate as low as it is?  Ever feel like you are being lied to pretty much all of the time?

froze25's picture

Yes, I do feel that way,  it's because we are.

Peacefulwarrior's picture

Lying to the masses is The new Opiate!

Stan Smith's picture

+1 and many more.

There's no question the liars are pulling ahead of the rest of the minions.

War and Fleece's picture

Im guessing they're just discretely hiking rates.

.01% tax increases create massive revenue increases if you consider how many people are affected.

If the people aren't working, you just tax those working even harder.

Income tax... <3

VD's picture

debt-slaves be slavin' away, compound interest screws...

Shitonya Serfs's picture

Yep. They're not warning, they're just bragging.

JRobby's picture

The "record tax collections" story is just that. A story. Are corps. with record earnings suddenly paying in record $$$$$ ??????  Because the earnings are made up numbers.

People have debt ceilings. Fair Eyesack, Eqifuck etc. will cut you off.

GOVT & Giant Corps. do not.

rmopf2010's picture

Wealth efect LMAO

Clock Crasher's picture

cash advances for bitcoin purchases.

BennyBoy's picture


Just growning more stupid student loans and auto loans.

Everything else seems OK.

NEOSERF's picture

Yes but uhmmm, is this per household because my guess is "households" are also at an all time high

ejmoosa's picture

Agreed.  Household formation is likely at an all time low as the kids move back home after getting their Masters Degrees in Social Joustice Warrioring.

all-priced-in's picture

Take out a second mortgage buy FANG!

gmak's picture

Monkey see, monkey do.

Chippewa Partners's picture

If it's from the FED it's bullshit.   Ask anyone who worked there. 

SloMoe's picture

Record high consumer debt. Record low interest rates. What could go wrong?

Dr. Richard Head's picture

Record low interest rates to whom?  Central banks and their cohorts or the plebes?


Peacefulwarrior's picture

From the channel stuffing I can see, They may be payin the consumer with much larger incentives and lower prices to move inventory.

zeroedgesd's picture

Bunch of stupid on credit in america

Bigly's picture

I am confused.

Unless you are the .01%, how are people retiring? Nobody has $25,000, let alone debt free.

What are they counting on?

Money in the bank? Ha

Pensions, 401k? Haha

Social security? Hahaha

ejmoosa's picture

Fake it til you can't.

just the tip's picture

Nobody has $25,000, let alone debt free.

hello, my name is Nobody.  as know so much about myself, that must mean you work for the NSA.  what dept.?  why not tell us something about yourself?  chase women?  sports bars?  drink beer while solving all the worlds problems with buddies, night after night?  just curious.

Bigly's picture

I too am nobody. I am debt free as well.

However, based on the uncertainties, there is no way I am retiring any time soon. Friends my age are EARLY in the next 2 years.

Serious Q. ..if you were pvt sector how much $$$ would you think you need to retire at 55.

I estimate they should have at least 5 million free and clear....if you want to sleep at night.

corporatewhore's picture

That's a great number til it isn't.

Silver Savior's picture

I am counting on silver and gold for retirement. Ya know when they reset the system and revalue both metals to some obscene valuation. And by that time I will also have universal basic income. I have no worries at all except the people who have money tied up in the fiat dollar ponzi scheme. It will all reset to zero.

Bigly's picture

A lot of us have hedged this way -at least a little- but given the crazy going on, I am not convinced (at all) that we will be allowed - without threat of imprisonment - to convert out after shtf.

We all see quite clearly that smart, clear thinking common sense types are vilified.  To me it is common sense to have assets that are not fiat based. That means I am wrong!!!

Ben A Drill's picture

Perople cant even make minimum payments on their credit cards these days. Just look in a your wallet, if you have more than one credit card and you have a balance due that has to be paid with interest, then you have a problem.

I see this every day, having to use multiple credit cards to see witch one will get approved. Its truly sad knowing that a bankruptcy is right around the corner. Yet the dumb fucks think it's standard operationing procedure to get by to the next month. Tick tick motherfuckers.

Silver Savior's picture

I have noticed more and more loans with a payment due every two weeks instead of once a month. Are they just setting people up to fail? Once a month is bad enough.

Ben A Drill's picture

Are you talking about home loans? If you are, then people paying every two weeks are trying to save on interest paid every year.
It only works if you never miss a payment. Which hardly ever happens.

People take the bait every time. Suckers.

Banks are smart. We have to be smarter. That means learning to read English and the small print on a contract. Understand what interest means on a loan or credit card.

When a person falls behind in payments your behind the eight ball.
Meaning, your going to be gouged in interest payments falling faster and faster toward bankruptcy. That's how banks rape you.

This is ZH so you already know this. You've been here a long time.

So I degress.

Postal's picture

I did that when I bought my Jeep. It saves on interest and doesn't take as big a hit out of the bank account.

GunnerySgtHartman's picture

Some credit cards will let you do that, too.  My credit card issuer will let people make a couple of payments each statement cycle.

That being said, it's a moot point for me b/c I pay in full every month.  Screw the banksters.

corporatewhore's picture

True that.  People using multiple cards to pay for a single transaction (and not a huge one)--from wealthy to the poor.

Silver Savior's picture

Just erase everyone's debt and let them max out their cards again. It's just money from nothing. Who cares? Why keep people under oppression? Oh I forgot, conservatives like that sort of thing.

FreeShitter's picture

Banker zio Jews like that sort of thing, infact all the way back to Jesus' days sort of thing.