The coming recession may already be here

More than half of Americans believe the country is already in a recession, and with good reason. Countless families have had their finances devastated over the past three years as they fell deep into debt and are now trapped there with punishingly high interest rates. Worse, a growing number of indicators suggest the recession has spread to the broader economy.

Typically, an economy grows as population and productivity increase, increasing total production, income, and consumption. When this growth stalls and reverses into a recession, we call it a recession. Production falls and people have a lower quality of life.

The most common indicator of growth or recession in an economy is gross domestic product (GDP), which estimates total spending.

The federal government borrows trillions of dollars a year and spends every penny, which increases GDP because government purchases are counted in the calculation. When wealth is distributed and people spend that money, it counts as consumer spending and increases GDP.

So the trillions of dollars that appear to be economic growth are simply loans from the future—debt that will eventually have to be paid back by taxes or inflation. Both will kill growth.

Consumers are in the same boat. Families have depleted their savings and gone into debt to meet today’s stratospheric cost of living. Credit card debt alone is a record $1.14 trillion. Total household debt has risen to a staggering $17.8 trillion.

But the debt farce is coming to an end, and the facade of economic growth is about to collapse. The latest consumer credit data shows that growth for things like credit cards has begun to fall at the fastest rate since the COVID recession.

It’s not clear whether this is primarily due to people’s reluctance to take on debt or lenders’ reluctance to lend more, but the message is clear: consumer spending — which accounts for about two-thirds to three-quarters of the economy — is about to hit a limit.

In addition to record-high prices, people are now deeply in debt and facing high interest rates. American families are paying more than $300 billion a year in credit card interest for the first time. People are being forced to cut back and lower their standard of living as debts come due.

How we got here is a lesson in failed public policy and disingenuous marketing. Left-wing politicians promised Americans an economic panacea if only the government could spend trillions of dollars we didn’t have.

In June, interest on the federal debt accounted for 76% of the personal income taxes paid that month. It now costs about $1.2 trillion a year to service the debt, without spending a dime on capital.

The bill for years of wasteful spending is due, and the price is high. As companies report falling demand and falling orders, and hiring slows, it is becoming increasingly clear that the party is over. A recession may already be starting.

EJ Antoni is a public finance economist and a Richard F. Aster Fellow at the Heritage Foundation/InsideSources