#creditcarddebt

Credit card delinquency in America – nothing to see here?

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Waltzing through the treasure trove of data at the St Louis Fed, this chart intrigued. It shows delinquency rates on credit cards among the smaller banks. Presumably the smaller banks have to chase less credit worthy customers because they lack the ultimate battleship marketing cannons of the bigger financial instititutions. We’re back at times worse than the highest levels seen during GFC. Among all banks, we are still away off the $40bn of delinqient credit card debts we’re back at levels higher than those before Lehman’s brought financial markets to a grinding halt.

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Add to that the step up in interest rates as well to levels we saw before the whole edifice of cards came crumbling down.

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Then why worry when the number of financial institutions looking to tighten standards on consumer lending languishes at close to zero, the types of levels we saw ahead of the market collapse? Nothing to see here?

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Meanwhile American household savings languish at 3%. Similar levels as just before GFC  melt down. Not much in the rainy day funds. So when Trump’s new economic policy advisor Larry Kudlow starts telling us to back a strong dollar and weak gold, you know exactly what to do.

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Moral hazard was supposed to be contained at the private sector level. Looks as though this time around the government is joining the party.

How the other half is doing in America

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A few years back the US Federal Reserve did a survey which revealed 47% of Americans couldn’t raise $400 cash in an emergency without selling something. Do you recall Marco Rubio in the GOP primaries harping about knowing families who live “paycheck to paycheck”  Well the bad news keeps rolling in.  Northwestern Mutual has pointed out that 45% of Americans spend up to half of their monthly take home pay on (mostly credit card) debt service alone….which, again, excludes mortgage debt.

The study went on to show that 40% of that credit card debt was frivolous discretionary spending (which they claimed was the biggest source of their problems) but only 20% were able to make minimum monthly payments.  In short don’t be surprised to see defaults, bankruptcies and moral hazard rear its ugly head. Now we see a run on a Canadian mortgage lender. Does the poverty rate of 25% across EU vs 20% pre Lehman collapse raise red flags? Does sharply growing public sector employment across the majority of OECD  countries since GFC not strike you as failed economic policy? Does 1/3rd of Aussies saying 3mths of continuous unemployment would lead to an inability to repay their debts? How the 65yo+ demographic is the largest prisoner cohort in Japan because poverty levels are climbing. Yes pensioners are breaking Into jail.

If anyone thinks record high asset prices is a reflection on our collective wealth think again. The worst thing about this bubble is that it is the accumulation of three massive bubbles that never cleared. Sadly this one will pop like one of those game shows with a balloon full of  stinky slime.