Consumer credit card debt surged by $38 billion in April with inflation pushing to the highest levels in more than 40 years. This follows a record increase in March of $48 billion. Credit card debt is growing at almost 20% per month with the total credit card debt for all Americans standing at over $1.1 trillion. After seeing credit card debt fall in record numbers due to Covid-19 and the government stimulus, consumers are back using credit cards at a record pace.
Some analysts think this is a good sign and that it reflects a rise in consumer spending which is always good for our consumption and debt-based economy. They say it reflects high consumer confidence in the economy. However, the increase in consumer spending can be explained by the increase in prices in food, gas, housing more than any increase in discretionary spending. The record increase in credit card usage coupled with the rise of inflation is no coincidence. The credit cards are being used to bridge the gap in family budgets. The majority of the credit being used is for essential items for working class families. How families will deal with the increase in credit card debt remains to be seen. More importantly, how long can the average working consumer hang on by using credit cards to take care of budget shortfalls is probably the most important question that can be asked. Once the credit runs out for the average consumer where does the economy go? I think we know what will happen at that point, but what we don't know is when.