The Credit Crisis Will Wipe Out Millions of Americans This Winter! - Epic Economist

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A credit crisis is already in motion in 2023, and it is threatening to collapse the standard of living of many American families as loan conditions get tighter while the cost of living continues to climb. Access to credit is about to become an enormous issue for U.S. consumers. Today, we’re carrying far more debt than ever before, and the risk of widespread failures in the banking system is much higher, so financial institutions are far more careful about who are they going to lend money to. 
Now, a combination of persistent inflation and soaring interest rates is further stretching consumer’s budgets, and data shows that most households are reaching a breaking point. Last month, Americans’ debt levels just hit a new, but undesirable, milestone. For the first time ever, credit card debt surpassed $1 trillion, according to the Federal Reserve Bank of New York. In the second quarter, credit card balances skyrocketed by $45 billion, or almost 5%, to land at $1.03 trillion. That’s more than triple the average amount of new debt households have taken on in that period since after the Great Recession, the Fed’s latest Quarterly Report on Household Debt and Credit revealed.
This happened because the cost of living has risen four times faster than incomes since 2020. For the past two and a half years, we’ve been spending more to consume less each month. For households earning the median income or less, which represents about half of the population, turning to credit has become the only option they have to afford basic expenses.

From July 2022 to July 2023, total credit card debt grew by 8%, going up for five consecutive quarters, and increasing at some of the largest rates in 20 years, according to WalletHub, a personal finance website. “Unfortunately, it’s only going to go up from here,” says Matt Schulz, chief credit analyst for LendingTree. “What’s driving it is inflation, higher interest rates, and just generally how expensive life is in 2023.” The firm estimates that the average household’s credit card debt stands at $10,170. The Fed’s policies are allowing credit card companies to charge higher interest rates, making balances even tougher to pay off. At the moment, credit card interest rates are at a staggering 20.6%, the highest since data started being tracked in 1994.

At the same time, it’s been getting a lot harder for the average person to take out a loan or get approved for a credit card as banks and other financial institutions continue to tighten their lending standards. They are outright rejecting applicants, raising minimum credit score requirements, charging more interest, and lowering credit limits. Back in the spring, after the collapse of several major banks, several financial analysts sounded the alarm over a so-called “credit crunch,” a term used to describe the economy when consumers and businesses can no longer get access to the loans they need.  Numbers from the U.S. central bank show the trend from a different angle. By the end of June, the rejection rate for all types of loans, including credit cards, mortgages, and auto loans, had jumped to nearly 22%: the highest point in five years and one of the highest readings since the survey started in 2013.

The ongoing credit crunch will financially strangle many borrowers who are carrying high levels of debt. Now is a time to batten down the hatches and prepare for the stressful years ahead. Banks are in danger. The financial system is being shaken. The Fed will not bail us out anymore. So, the potential for disaster is very real, and the longer we wait, the bigger the problem becomes.

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