The average U.S. household has never been richer—but only if you count paper gains in the stock and housing markets.

New Fed data published last week showed that household wealth reached a record $154.28 trillion in the second quarter—up from $148.79 trillion in Q1. By comparison, household net worth was around $100 trillion in 2018.

What happened over those five years? Record money printing, a historic housing bubble, and a 40-year inflation high.

When there's more money in circulation, more dollars chase less goods. This leads to a rise in asset values and the illusion of newly accumulated wealth.

The Fed’s calculations showed that rising stock prices contributed $2.6 trillion to the increase in household wealth in Q2. Rising home values tacked on an additional $2.5 trillion.

If household wealth is as real as the Fed’s numbers show, why are so many Americans struggling to make ends meet?

Data doesn’t tell the whole story

Many Americans benefited from ballooning asset bubbles, but many others got the short end of the stick when it became clear that inflation was a real problem.

The nation is still paying the cost of the Fed’s money-printing experiment, which added $4.5 trillion to the money supply in roughly one year.

The Fed has been raising rates aggressively to fix the problem it helped create. And while nobody is crazy about higher borrowing costs, this tightening cycle hurt lower-income earners the most.

Debt-burdened Americans are now paying almost 30% interest on their credit cards and nearly 8% on new mortgages. Existing homeowners can’t take equity out of their homes without incurring massive refinancing costs.

Unsurprisingly, household debt has reached record levels—the average American has nowhere else to turn.

In Q2, household debt reached a new record of $17.06 trillion, according to the New York Fed. For the first time, credit card balances topped $1 trillion.

It’s clear Americans aren’t getting enough out of their paychecks—even though, technically, their household net worth is at an all-time high.

An overlooked problem?

If the consumer debt problem wasn’t bad enough, another worrisome trend has emerged: Total bank deposits have declined for five consecutive quarters.

According to the Federal Deposit Insurance Corporation (FDIC), total bank deposits were down 0.5% to 18.6 trillion. That’s still nowhere near the 2.5% plunge in the first quarter when several prominent banks failed.

FDIC didn’t seem worried, claiming that the decline may be attributed to consumers “actively seeking higher yields.” Savings accounts pay practically zero interest, but U.S. Treasurys pay above 4%.

While that may be partially true, five straight quarters of falling deposits could signal a bigger problem—especially when households borrow money at a record pace. People need more cash to make ends meet in the post-Covid economy.