The economy may be on the verge of another financial crisis but based on American households’ financial holdings you’d be hard pressed to see it. Americans remain so bullish about the US economy and its prospects that they continue to take on massive amounts of debt. Overall household debt in the US has expanded to nearly $13.7 trillion, nearly a trillion dollars more than its previous all-time high in 2008, as Americans continue to take out mortgages, auto loans, and run up their credit cards.
That high living won’t last forever, however, and there are already indications that the good times may soon be coming to an end. Along with record-high levels of indebtedness, delinquencies are also on the rise. The amount of loans in serious delinquency, over 90 days late, is also rising. That doesn’t bode well for the future.
While none of these numbers show astronomical growth above previous highs, that isn’t really terribly important. Because the previous highs were unsustainable, there’s no reason to believe that these new highs are any more sustainable. A decade on from the financial crisis, with unaffordable mortgages still out there, with lackluster wage growth, and with an economy on the verge of entering recession at any time, these unsustainable debt levels will pinch Americans badly.
These high debt levels may not be the precipitating factor behind the next financial crisis, but they definitely put American households on a precarious financial footing as the economy is set to enter the next crisis. A decade of near-zero interest rates has spurred record levels of indebtedness throughout the economy, with both households and businesses more indebted than ever.
All of this will end very badly for those who aren’t prepared for the worst when it arrives. While many investors are moving into the safe haven of gold to protect their retirement savings, many more aren’t. They’re looking at the economy and at stock markets with rose-colored glasses and thinking that things are going great since stocks are still high. Those investors will be in for a very rude awakening once the economy starts to head south.