May 22, 2023

We’re in a good news-bad news situation economically. The good news is inflation dropped to 5.0% in March, which is down from its 9.1% high in June 2022. The bad news is the American credit bubble is back because of the Federal Reserve’s inflation-fighting interest rate hikes.

After the pandemic, Americans were loaded with cash. Loan forbearance and tax credits combined with government stimulus to bolster accounts. The personal savings rate hit 33%, but that party is over:

A favorite American custom is spending on unneeded things. And that trend is alive again. Having lost opportunities to spend during the pandemic, Americans have made up for it by buying homes, cars, concert tickets, dinners, travel, and other forms of unnecessary “revenge spending.”

The Fed began raising interest rates in March 2022. Each increase made it cost more to take out loans and service credit card debt.

At first, it didn’t matter because Americans had ample savings. But now consumers are using credit for food and rent, pushing credit card debt to a record $931 billion by the end of 2022.

Saving the economy and everyday Americans from financial peril at the same time is tough. Recent Bankrate survey results agreed.

For instance, 36% of Americans have more credit card debt than emergency savings. More than four in 10 Americans in the prime working years (27 to 58) said they have more credit card debt than savings. And 25% said they would accrue debt to handle a $1,000 emergency expense and pay it off over time.

The survey also said economic factors are hampering saving. Some 68% of respondents said inflation is to blame, while 44% said lower income and less employment are holding them back.

So, inflation is decreasing, but America’s going broke.