Here's the growth rate of outstanding credit card balances in the United States:
Growth has been steadily accelerating over the past eight quarters, which suggests that consumers are keeping up their high spending levels only by relying on plastic. That can't continue unless wages start to grow significantly, something the Fed is determined to prevent.
Eventually credit card spending will have to stop growing, and with it consumer spending will stop growing too as long as real wages are flat. And then last year's interest rate hikes will kick in.
And then everyone will be shocked when economic growth sputters and dies out. How could that have happened?
NOTE: Credit card spending is highly seasonal, which is why I used year-over-year growth in the chart above.
I plan to be counter-cyclical and buy a new car when the recession brings prices back down to normal. That should make the recession a little less deep.
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Just eyeballing the chart it looks like credit card balances are lower than they were pre-pandemic. I assume these are not per capita figures, so the per person balances are even lower.
If debt balances werent troubling you in 2019, im not sure they should be worrying today.
"If debt balances werent troubling you in 2019, im not sure they should be worrying today."
Interest rates don't really work that way.
The rates have already kicked in.
Also, credit card rates are one of the first ways they kick in. This chart is no surprise. I just checked my primary credit card and while I don't carry a revolving balance anymore, the rate was 14.99% in February 2021 (and February 2022) and was 19.24% in February 2023. It was 17.99% in November 2022.
That kind of thing hits people immediately. With the amount of credit card and student loan debt (much of which has variable rates as well) in this country, talking about interest rates as if they don't have much of an effect until a year later is very much not with the times.
Yes, exactly.
It is not new either, rather " talking about interest rates as if they don't have much of an effect until a year later is very much not with the times." - Drum has read somewhere relative to Central Bank rate rises that they take X amount of time (a year as a rule of thumb) to have full effect - and fundamentally completely misunderstood the observation.
It is in fact a correct general rule of thumb that from rate rise X by Central Bank on its reference rate that the chain of borrowing cost rises to end-borrowers (companies, consumers) that this triggers will take something between a few quarters to a year to fully "complete" (all things being equal, which they never are, so it is really a rule of thumb, not a hard metric, and depends on the specific velocity of money and overall efficiency of a given market's transmission mechanisms - including the balance of Fixed Rate borrowings and variable rate as obviously Fixed Rates will transmit slower as debt is rolled-over and renewed or replaced - slower than variable that are adjusted virtually in real time).
This is not new, and so his constant repeating of "kick in" in one year is fundamentally misinformation, seriously disappointing disinformation.
Re: That kind of thing hits people immediately.
Only if you carry a balance on your credit cards. Most people don't.
Entirely 100% wrong
Consistently over years 58-60% of card holders carry balances. Most people do.
2017
https://www.creditdonkey.com/credit-card-debt-statistics.html#:~:text=What%20percentage%20of%20cardholders%20carry%20a%20balance%3F%20The,say%20they%20always%20pay%20more%20than%20the%20minimum.
2019: https://www.bankrate.com/finance/credit-cards/many-americans-carry-credit-card-balance/#:~:text=For%20many%20Americans%2C%20credit%20card%20debt%20is%20a,have%20been%20so%20for%20at%20least%20a%20year.
(etc)
Lefty educated professional class of course have heavily internalised "don't carry a balance" and don't.
that is not most people
For God's sake: "And then last year's interest rate hikes will kick in"
Drum you have entirely bloody misundertood whatever you read and are repeating in a Fox NEws like form of half-understood dezinformatsia.
Centra Bank reference rate changes do not "kick in" after one year in some mysterious fashion, rather it is a rough rule of thumb that it takes about 1 year for the full effects of a reference rate rise to feed through. This is not "kicking in" for the sake of God, its is a rule of thumb on a rough completion of a feed through.
Central Bank rate rises "kick in" immediately in their direct channels - which is any borrowings that are directly off of the reference rate windows (whichever the specific mechanic of the specific central bank), as well as any and all private lending that is by contract linked to the reference rate - depending on the market typically inter-financial institutionals, but as well often interbank rates etc. and sometimes actual non-financial borrowings. Immediate but not direct (in financial mechanics) impacts are also seen in bond and other markets that quickly adjust to those reference rates, which then move the cost of private borrowings broadly. This is why markets move when Central Banks raise referenc rates, good God... Market borrowing costs, Euro, Dollar have all gone up more or less within days and weeks of the initial rate rises and of course feeds into economic activity (just like rate cuts in recession).
You keep repeating nonsense due to what appears to be a superficial half-understanding and what has become a pathetic pattern of denialism.
And now let’s move on to cat blogging…
If you look at the % of credit card debt to total consumer debt, it was at 5.81% in Q4-2022. In their data set, the highest was earliest data point, Q1-2003, at 9.51%.
I'm thinking maybe you're looking at the wrong data point. Mortgages make up about 70% of total consumer debt, and there is more debt to be had in HELOCs.
Is that number the amount charged on Credit cards or the amount financed by credit cards? Many wealthy people spend everything on CC’s for the benefits and convenience but do pay it off every month. So does that number reflect charges that are not payed?