Credit card debt in the United States has not only crossed the trillion-dollar threshold but is also witnessing an alarming rise in delinquencies. This is a phenomenon we haven’t seen since the Global Financial Crisis (GFC). What’s even more perplexing is that this is happening amidst what is being touted as a “resilient economy.” Let’s unravel the mystery behind these numbers and understand their implications for you and me.
The Parabolic Rise in Credit Card Debt
The first chart we need to discuss is a stark representation of the skyrocketing credit card debt in the U.S. As you can see, the blue line representing credit card debt has gone completely parabolic in 2021, extending into 2023.
But what’s truly captivating is the red line, which represents the savings rate. The inverse relationship between the two is striking. When stimulus checks were abundant, and people were paying off student loans, credit card usage plummeted. But as the “stimmies” ran out, we saw a surge in credit card debt. It’s as if we’re on a financial roller coaster, and the big drop is just around the corner.
The Alarming Rate of Delinquencies
The second chart is even more unsettling. According to Goldman Sachs, credit card losses are rising at the fastest pace since the GFC. Not only do we have astronomical levels of credit card debt, but we’re also seeing an increase in delinquencies, both in nominal terms and as a percentage of that overall debt.
The yield curve has historically been a reliable indicator of economic health. Yet, it’s conspicuously absent from mainstream discussions about credit card debt and delinquencies. When we look at the yield curve in conjunction with credit card loss cycles, the picture becomes clearer—and more concerning.
Ignoring the yield curve is akin to ignoring the check engine light on your car. It’s a warning sign that something is amiss, and dismissing it could lead to disastrous consequences.
The Disconnect Between Wall Street and Reality
The mainstream narrative seems to be living in a parallel universe where the possibility of an economic downturn is a fringe view. Financial analysts and media outlets are so focused on maintaining the status quo that they’re willing to overlook glaring signs of economic instability.
This isn’t just about being wrong; it’s about the consequences of that mistake. When the narrative is so skewed, it not only misinforms the public but also creates a false sense of security that could have devastating impacts.
What Does This Mean for You?
The implications of rising credit card debt and delinquencies are far-reaching. For the average American, this could mean higher interest rates, lower credit scores, and a more challenging financial landscape to navigate.
The best course of action is to be informed and prepared. Consider diversifying your investment portfolio, building an emergency fund, and most importantly, standing up for financial literacy and free-market capitalism.
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