At the peak of the Great Recession in 2008, household debt hit $12.68 trillion. Millions lost their homes, and even people who were current in their mortgage payments suffered because home values sank.
Household debt, which includes mortgages and car and other loans as well as credit card balances, eventually dipped when the economy rebounded. But it’s back up again to $12.84 trillion in the second quarter of this year, according to the New York Fed.
Even with the recent news that the overall economy grew by 3 percent, there is an important warning in the household debt figures for individuals. The high debt load means fewer individuals will be able to cope with added expenses. They are just a sickness, a job loss, or a flooded basement away from financial stress. Indeed, market analyst Michael Lebowitz told Business Insider that consumers “in the bottom 80 percent are tapped out.”
But many of the very forces which can help consumers are being shredded in Washington. Recently, the Senate voted, 51-50, with Vice President Pence breaking the tie, to deny consumers their constitutional right to a day in court if they are abused by finance companies. It was the latest attack from congressional Republicans on the Consumer Financial Protection Bureau, the only federal agency designed to protect consumers from unfair lending practices.
As protections are cut, consumers are facing even higher expenses, which could send them further into debt. The Trump administration’s refusal to pay Affordable Care Act subsidies has insurance companies increasing individual market policies by an average of 34 percent, and this is just the beginning. Health insurance companies are going to seek higher premiums from everyone else to cover their losses.
Stressed consumers shouldn’t be banking on the president’s deceptively named “tax reform” package for a few extra bucks. That much-repeated $4,000 pay hike for workers is based on overstated economic growth resulting from the corporate tax cut that some say will result in higher wages.
Worse, Trump would eliminate income tax deductions for mortgages, retirement funds, children and state taxes hitting the middle class where it lives. The elimination of the deduction for state taxes will be especially hard on people in the Philadelphia region, raising taxes on New Jerseyans $3,500 and Pennsylvanians by $2,200, according to the nonpartisan Tax Policy Center. And, the plan would slash Medicaid, Medicare and other important government services to finance the tax cuts for corporations and the wealthy.
These hits to already leveraged consumers as well as cuts to the safety net could be the hand that pushes some over the financial cliff.
The New York Fed report contained another troubling sign that consumers are running out of rope. Credit card balances and delinquencies are up from a year ago. Couple that with the Bureau of Economic Analysis’ report last Monday that the savings rate is dropping and you have to wonder whether people are getting ready to deadbeat their creditors.
We could very well be in the days before another consumer crisis. But there’s still time to talk sense into Congress as it debates Trump’s tax plan this week and tries to kill the CFPB. Call your representatives and tell them you work hard for what you have, and can’t afford any more bills.