State of the American Wallet: What's in Store for 2018?

As of June 2017, Americans had a record $1 trillion in revolving debt. Nonrevolving debt is growing even faster.

MarketWatch has "One Sure-Fire Prediction for 2018 " Americans will take on even more debt.

The average credit-card balance per consumer will rise about 1% next year, according to TransUnion. This would be the fifth year in a row that the debt level would increase. Today, households that have credit-card debt each have about $15,654, according to NerdWallet, so their balances could rise about $156 next year.

The rise in debt is partially because of consumers making unnecessary purchases, Palmer said; some 41% of the 2,000 consumers NerdWallet surveyed in November said they spend more than they can afford on items they don’t need.

But there are other factors at play. Expenses like food and housing are “skyrocketing” faster than income, she said. That leaves little money for other essentials and emergency funds for expenses like medical bills.

“It’s really striking how much credit-card debt is weighing on American households,” said Kimberly Palmer, a credit-card expert at the personal finance company NerdWallet.

Trends

I produced the top chart from the latest Fed G.19 Report on Consumer Credit.

The trend is unmistakable, but more so for nonrevolving credit than credit card debt.

Sure-Fire Prediction?

  • The total consumer credit recession peak was $2.664 trillion in July of 2008.
  • In August of 2010, total consumer credit fell to $2.518 trillion.
  • Revolving credit fell from $1.021 trillion in April of 2008 to a low of $0.833 trillion in April of 2011, a three-year decline.

It is by no means a "sure-fire" prediction that credit will expand in 2018.

Writeoffs on consumer credit are poised to soar once a recession hits. Consumers will once again attempt to pay down credit card debt.

Explaining the Credit Binge

The availability of credit exploded after Nixon closed the gold window on August 15, 1971.

At that point, nations no longer had to spend their gold or hike interest rates to stop the flow of gold on trade deficit balances.

Balance of Trade

Sorry State of Affairs

After Nixon closed the gold window, consumers could borrow all they wanted to buy junk from China and cars from Japan.

And with China and Japan accumulating US assets in return, there was a guaranteed buyer of US treasuries at increasingly lower interest rates.

GDP is in a funk because of debt overhang. Consumers struggle to pay down debt. Many can't because they are overleveraged to their homes.

This is all very inflationary until the bubble bursts once again. And when it does, faith in central banks will take a big hit. I expect gold will be the beneficiary.

When Does Gold Do Well?

Gold is not really an inflation hedge per se. Gold fell from $850 in 1980 to $250 in 2000 with inflation every step of the way.

Rather, gold performs well in specific instances, the primary one being a loss of faith that central banks have things under control.

Do central banks have everything under control? The charts suggest otherwise.

For further discussion, please see How Much Gold Should the Common Man Own?

Mike "Mish" Shedlock

Comments
No. 1-10
Sechel
Sechel

How can expenses on food and housing be rising faster than incomes when the CPI says we have no inflation?

RonJ
RonJ

No. Yellen didn't see the last crash until it happened. Bernanke said it was contained to subprime. Greenspan was called The Maestro- until the housing bubble burst. There is a created illusion that the FED is in control- until the truth comes out.

RonJ
RonJ

"Do central banks have everything under control?"

Blacklisted
Blacklisted

Mish, your assumptions are flawed, so how can your conclusions be correct? You are parroting the govt propaganda that blames the Fed for inflation instead of CONgress that borrows and spends without any intention of paying anything back. Most of the money creation is NOT done by the Fed, but by the Treasury to pay for all of the overspending by CONgress to buy votes.

Of course CONgress wants to deflect the negative consequences that comes from the interest expense associated with the Treasury bonds, notes, and bills that are sold to fund their gross negligence, but why are you carrying their water? Why don't you go full Libtard and blame the deficits on the rich that don't pay their fair share, instead of govt that can NEVER live within their means? BTW, did you realize that 20% of Federal employees (over 407K) make over $200K, and there has been a 167% increase in bureaucrats making over $100K since 2010? Forgetting the outrageous vacation and sick pay benefits that no one in the private sector ever sees, it is obvious that govt cannot police itself, as the FBI is now demonstrating - https://www.zerohedge.com/news/2017-12-27/1mm-minute-salaries-22bn-year-vacation-pay-and-other-fun-facts-about-federal-workfor.

Even with interest rates at historic lows, over 50% of our total debt is from accumulated interest on debt issued by the US Treasury. When interest rates revert to the mean we will be paying more in interest than any other govt expense, and this coming crisis is caused by govt, not the Fed. Unlike govt debt, most private sector debt is backed by collateral. It will be the popping of the GOVT debt bubble that will usher in the next / biggest crisis. Of course, CONgress allows the big banks to manipulate them because the banksters fund their campaigns and sell their debt, which is why CONgress rescinded Glass-Steagall and allows the money-center banks to park excess reserves back at the Fed - and get paid for it!

It is govt, not the Fed, that refuses to prosecute EXISTING anti-trust laws against banksters and healthcare companies. It is CONgress that allowed traditional relationship banking, that loaned to small businesses, to be replaced by transactional/speculative banking that risks grandma's savings with no benefit to the real economy. It is these types of actions by GOVT, NOT the Fed that is destroying trust and confidence, and IT IS ONLY THE COLLAPSE OF CONFIDENCE IN GOVT THAT CAUSES HYPERINFLATION, NOT the "loss of faith that central banks have things under control".

Stop being a govt / establishment propagandist. Maybe this also why you are a Bitcoin hater, as the banksters and the rest of the establishment are bypassed with cryptos. Are you afraid the wrong people are getting rich -
http://www.zerohedge.com/news/2017-12-27/why-status-quo-disdains-bitcoin-wrong-people-are-getting-rich?

George_Phillies
George_Phillies

Shamrock, thanks for the interesting graph.