Bidenomics Strikes Again

The Biden administration thinks it successfully warded off a recession. But that isn't true. A recession may be coming this year, even as Biden continues to claim that the economy is strong and that inflation is going down while wages are going up.

According to the New York Federal Reserve, credit card delinquencies surged more than 50% in 2023, total consumer debt skyrocketed to $17.5 trillion, and debt classified as "serious delinquency" (90 days or more past due) experienced a notable uptick across various categories throughout the year. However, the most significant increase was with credit cards.

“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” Wilbert van der Klaauw, an economic research advisor at the New York Fed, told CNBC. “This signals increased financial stress, especially among younger and lower-income households.”

With a total of $1.13 trillion in debt, credit card debt that moved into serious delinquency amounted to 6.4% in the fourth quarter, a 59% jump from just over 4% at the end of 2022, the New York Fed reported. The quarterly increase at an annualized pace was around 8.5%, New York Fed researchers said.

Delinquencies also rose in mortgages, auto loans and the “other” category. Student loan delinquencies moved lower as did home equity lines of credit. Overall, 1.42% of debt was 90 days or more past due, up from just over 1% at the end of 2022.

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While delinquency levels are rising, the New York Fed researchers said total debt is moving higher about in line with the pace before the Covid-19 pandemic began in March 2020.

Household debt rose by $212 billion in the quarter, a 1.2% increase quarterly and about 3.6% from a year ago. Credit card debt, however, jumped 14.5% from the same period in 2022. Auto debt increased to $1.61 trillion, up $12 billion on a quarterly basis and $55 billion annually, or 3.5%.

In November, experts warned of a looming credit card debt crisis as consumer spending was likely being financed by credit cards.

“Consumers are just waking up to the fact that they’re financing their spending by running up their credit cards and that the interest on those credit cards is over the top, out of control, off the hook right now,” Carl Weinberg, chief economist at High Frequency Economics told CNBC in December.

“That’s going to lead to, I think, a retrenchment in consumer spending, as we get into the new year.”

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Monica Defend, head of the Amundi Investment Institute, said at the time that consumer spending is likely to experience a major decline as Americans attempt to manage the debt they incurred over the holidays.

“Financing and financial conditions, eventually, will start to bite the U.S. consumer that is progressively depleting the excess savings that have been ... protected during 2023,” she explained.

If that prediction pans out, a recession is likely. A decrease in consumer spending will create a decline in demand for goods, causing production cuts and potentially leading to workforce reductions.