The Household Debt Ticking Time Bomb
By Dave Kranzler
GoldSeek.com
Thursday, 11 January 2018
I fully expect the Government’s Census Bureau to post a mind-blowing headline retail sales number for December. Hyperbolic headline economic statistics derived from mysterious “seasonal adjustments” based on questionable sampling methodology is part of the official propaganda policy mandated by the Executive Branch of Government.
But I also believe that retail sales were likely more robust than saner minds were expecting because it appears that households have become accustomed to the easy credit provided by the banking system to make ends meet. Borrow money to “spend and pretend.” The Fed reported that consumer credit hit an all-time record in November. The primary driver was credit card debt, which hit a new all-time high (previous record was in 2008). Credit debt also increased a record monthly amount in November.
“Speaking of signposts, households have grown increasingly comfortable with leverage to maintain their living standards, which of course economists cheer. That’s worked for 24 straight months as credit card spending growth has outrun that of income growth” – Danielle DiMartino Booth, who was an advisor for nine years to former Dallas Fed President, Richard Fisher.
The graph above shows the year over year monthly percentage change in revolving credit – which is primarily credit card debt – and real disposable personal income. Real disposable personal income is after-tax income adjusted for CPI inflation. As you can see, the growth in the use of credit card debt has indeed outstripped the growth in after-tax household income. The credit metric above would not include home equity lines of credit. At some point, assuming the relationship between the two variables above continues along the same trend, and we have no reason to believe that it won’t, credit card debt will collide with reality and there will be a horrifying number of credit card defaults. Worse than 2008-2010.
The Rest…HERE
