Americans hitting peak debt?

Not a chance, there are always lenders looking for new & creative ways to offer Americans enough rope to hang themselves. For proof of this look no further than the growth of consumer credit in The United States, increasing at an annual growth rate of some 6.6%, MUCH faster than US GDP. So what’s the problem you ask?

Its simple: used properly debt is a tool to pull future earnings into the present, where funds can be used to improve current living standards e.g., buy a house, or improve one’s future prospects e.g., University tuition. Used improperly, debt is a yet another way to binge, to engage in what Americans do best — live for the moment.

Consider Credit Card debt held by Americans, which this month hit a post WWII high, according to The Federal Reserve and now exceeds $1T.

At current interest rates we see Americans paying approximately some $20B a month in interest alone, which, of course, enriches only banks and other lending institutions. And does little to nothing to improve American’s current or future standards of living. As I said, live for the moment.

Still, whats the problem you ask? Well, credit care delinquencies are starting to increase. The chart below shows the rate of change of delinquencies on credit cards on a rolling one year basis. The first quarter of 2017 showed an delinquency increase of well over 12%, a rate we haven’t seen since Q3 of 2007.

Looking at the last two US recessions, Credit Card delinquencies started to increase about six to nine months before a recession was formally announced.

Can it happen again? Of course. Especially considering The Federal Reserve is increasing interest rates.

That $20B a month of money just pissed away? It will only increase.

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