"There Are Warning Signs Out There" - Bloomberg Stumbles On Catalyst For The Next Debt Crisis

As we've pointed out time and time again, rising consumer-debt levels are one of the most overlooked risks to the US economy, especially as household debt levels (excluding mortgages) climb to record highs and credit-card charge-offs at smaller banks have surged in recent months. 

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Earlier this month, we celebrated the fact that WSJ had finally caught up to the topic, admitting that the combination of stagnant wages, rising interest rates and rising consumer debt could have potentially explosive consequences for the US economy. 

And now, Bloomberg has also jumped on the band wagon, warning that rising credit card debt could cause problems in the not-too-distant future once baseline interest rates have had time to rise.

US consumers have accumulated an aggregate $1.04 trillion credit card debt.

Or, as Bloomberg put it, "a healthy economy can be a dangerous thing."

"When consumers are confident, or over-confident, is when they get into credit-card trouble," said Todd Christensen, education manager at Debt Reduction Services Inc. in Boise, Idaho. The nonprofit credit counseling service has seen a noticeable uptick in people looking for help with their debt, he said.

Spending on US credit cards climbed 9.4% last year to $3.5 trillion, according to industry newsletter Nilson Report. And as we've pointed out, student loan and subprime auto debt are also poised to wreak havoc on the economy.

"There are warning signs out there," said Kevin Morrison, senior analyst at the Aite Group. Especially concerning is a surge in student and auto loans over the past decade, he said.

Meanwhile, the steadily rising Libor (another risk that we were early to spot but that the rest of the financial press has largely written off), could create problems for corporations - particularly those with lower credit ratings. Approximately $350 trillion of contracts are based on Libor, according to ICE.

Of that, companies with US debt rated triple-B could present an overlooked risk to US debt markets. Triple-B debt has noticeably underperformed other investment-grade debt classes. The fear, according to WSJ, is that if the economic expansion were to slow, triple-B debt is the most vulnerable - something the IMF pointed out in a recent report about financial stability.

To be sure, many Americans might not notice the strain from rising rates - at least not for some time. So far, short-term rates have moved dramatically higher while long-term rates have hardly budged. Many new loans are linked to long terms rates. Also, many loans have fixed rates that were set in stone when the loan was granted.

But consumers with risky adjustable-rate mortgages, a class of borrowers who played a crucial role in triggering the housing market collapse, could be in trouble when their Libor-tied loans reset, which they do once a year. Fortunately, these loans are much less common than they were during the crisis.

Most credit card interest rates are tied to Fed funds, and while an extra quarter point won't make much of a difference, over time, Bloomberg believes credit card debt poses the greatest risk to the economy. Fewer than 40% of consumers regularly pay their credit card bills.

According to the latest Fed data, total consumer debt rose by $28 billion, or the most since November 2001, to $3.827 trillion, during the third quarter of 2018 - an annualized increase of 8.8%, or roughly 4 times faster than the pace of overall GDP growth.

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At the same time, the savings rate for US consumers has plummeted to its lowest level since November 2007.

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Which means the recent economic rebound can likely be explained with two words: "charge it."

Comments

mobius8curve Vlad the Inhaler Mon, 04/02/2018 - 20:34 Permalink

The next catalyst will bring an enrollment in the blockchain through your biometrics:

https://www.hypr.com/biometric-bitcoin-blockchain/

Then the beast system will control who can and can not buy and sell:

Revelation 13:15-17  And it was given unto him to give breath to it, even to the image of the breast, that the image of the beast should both speak, and cause that as many as should not worship the image of the beast should be killed.  (16)  And he causeth all, the small and the great, and the rich and the poor, and the free and the bond, that there be given them a mark on their right hand, or upon their forehead;  (17)  and that no man should be able to buy or to sell, save he that hath the mark, even the name of the beast or the number of his name.

Its a 7 year plan:

https://sumofthyword.com/2016/10/04/the-rapture-of-the-church-is-after-…

In reply to by Vlad the Inhaler

Endgame Napoleon fauxhammer Mon, 04/02/2018 - 21:24 Permalink

Hey Bloomberg: The debt is fueled mostly by churn-mobile jobs, like most of the jobs in financial services, with no UC to cover rent until you get another part-time, low-wage, high-turnover, temporary or 1099 gig. It is caused by rent that soaks up more than half of the earned-only income of non-womb-productive, non-welfare-eligible, single citizens. Most frivolous purchases made with credit cards due to “consumer confidence” are swipes by dual-high-earner parents, trying to ramp up their airline rewards to use on their next excused babyvacation. Those parents pay their card balance off every month, using the cards just for the discount. Most people with lesser means just make the regular payment. 

In reply to by fauxhammer

Dragon HAwk Mon, 04/02/2018 - 20:32 Permalink

Tey'd bees OK if them White bankers, would just Raze their Credit Limitzz.

  sorry don't know how to write the White version of that Joke, somebody help me out here.

itstippy Mon, 04/02/2018 - 21:16 Permalink

In my town growing up no one had a credit card.  Really; no one in our entire town had a cedit card.  If you needed an unsecured personal loan you borrowed from relatives.  If you had collateral and a good reputation and needed a larger loan you went to the local bank.  Many merchants and barkeeps ran weekly or monthly tabs for their best customers.  There were two pawn shops where you could pawn something of value for some money and buy it back, with interest, in a month.  If you didn't buy it back after a month the pawn shop would sell it.  Auto repair shops and dentists had "time payment" plans available.  That was it for credit.

cornflakesdisease Mon, 04/02/2018 - 22:04 Permalink

What these articles fail to understand is that millions of people use these cards for everything each month and then cut a check.  No one uses cash.  Lots of people want rewards.  So, though I am sure many people are up to their eye balls, many people are not.

Let it Go Tue, 04/03/2018 - 07:06 Permalink

A rising deficit that has yet to yield dire consequences has given the American people a false sense of security. It is also clear that running up debt is far easier than paying it off. As things stand America continues to rack up a deficit each year of nearly $2,500 for every man woman and child in the country, such deficits were unheard of in the past unless it was during a major war.

The fact is with the artificially low-interest rates of today many people seem to have little desire to cut spending. We are literally gorging on debt, and most Americans seem to think that it is just fine and dandy to wildly run up debt as if there is no tomorrow. More on this topic, and some ugly numbers, in the article below.

 http://Is The Growing National Debt No Longer.A Major Issue? html

voting machine Tue, 04/03/2018 - 08:28 Permalink

I'm 62 and a paint contractor , working by myself , in a small college town.

I get calls on my cell phone almost everyday offering a line of credit up to $250K

I should cash a few of them in and run...LOL