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Warning: America’s debt is rising at record levels

Household debt exceeded $16 trillion for the first time in the second quarter as rising inflation fueled home and auto loans, the New York Fed reports. Collective U.S. IOUs were $16.15 trillion by the end of June, up $312 billion, or two quarters, from the second quarter.

“Americans are borrowing more, but more borrowing is driven by higher prices,” the New York Fed said in a blog post. While new home business slowed, mortgage balances rose 1.9 percent, or $207 billion, to about $11.4 trillion in the quarter. That year’s increase marked a 9.1 percent gain from the previous year, when home prices skyrocketed during the pandemic.

Credit card balances rose to $46 billion in the three-month period and rose 13 percent over the past year, the largest increase in more than 20 years, according to Fed researchers. Non-home loan balances rose 2.4 percent from the first quarter, the biggest increase since 2016.

Student debt was little changed at $1.59 trillion.

The rise in borrowing comes on the back of an 8.6 percent inflation rate in the second quarter, including a 9.1 percent rise in June — the sharpest increase since November 1981. Home inflation rose 5 percent in June at an annual rate of 5 percent. Prices of new and used cars increased by 11.4 and 7.1 percent respectively.

In response to high inflation, the central bank raised interest rates four times in 2022, by a total of 2.25 percentage points. Those hikes pushed 30-year mortgage rates up to 5.41 percent, up more than 2 percentage points since the start of the year, according to Freddie Mac.

Despite rising debt, inflation and high interest rates, crime rates remain relatively benign. “Despite rising debt, households in general have weathered the pandemic better, in no small part due to comprehensive programs to support them,” the central bank said. time in our data history.”

Certainly, rising debt is something investors should watch out for. However, there is no risk of a repeat of 2008 unless the debt is repaid. However, against the backdrop of rising interest rates, high debt is a warning signal that sooner or later will become a problem.

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