Wealth Mgmnt

Personal credit debt hits all time high … and is crushing folks back home

Personal credit has hit an all-time high at just a smidgeon over $1 trillion.  That is a statistic that tells us a lot about the American economy today – and its future.

What this does tell us is that millions of Americans are in or will be entering the “credit trap.”  That occurs when the creditor is not able to sufficiently reduce the principle because of the amount of interest is all they can pay.  And that Interest payment will never go down unless the creditor can make meaningful reductions in the principle.

(I know the problem because years ago, I got sucked into the “credit trap.”  It was horrifying to realize that I did not have sufficient income to knock down the credit card debt. It was all I could do to cover the interest.  It took me a couple of years to escape from the trap – and that meant cutting a lot of expenses and working extra hard to increase the income.  Today, I have fewer credit cards … I keep the credit limits very low … and I keep the monthly charges well below the credit limits.  Nothing is more liberating than pay-as-you-go.  But I digress.)

There is a second problem for folks in the “credit trap.”  Even though they cannot reduce the principle by very much in any given month, they still use the card – until the credit limit is reached.  And that puts another squeeze on the monthly budget.  That is about the time they default.

The $1 trillion personal credit partly explains why President Biden’s and the Democrat’s good news gospel about the economy is not winning over the public.  Put simply, Biden & Co. push a false theory about the economy.  The folks back home are living with reality.

Biden’s economic team talk proudly how the economy is roaring based on consumer spending.  Despite the increase in interest rates by the Federal Reserve, there has been little impact on consumer purchases.  The public is spending more than ever.  

But that may be changing. The credit card debt may finally be tamping down purchases.  Black Friday fell short of expectations, and retailers are predicting sluggish Christmas sales.  

Much of that spending is for the purchase of goods and services, but a good measure of the increase in spending is due to … inflation.  Inflation itself often increases spending as people over purchase today for what they believe will be more expensive tomorrow.

The problem is not how much the public is spending but how?  It is that $1 trillion dollars in credit purchases that has millions of Americans struggling – and driving millions more to the precipice of financial collapse.

Even “Morning Joe’s” Mika Brzezinski is conceding that the economic problem is not a messaging failure.  She rightfully pointed out that the 30-something Americans cannot afford homes.  They cannot pay their bills.  They are in dire straits.  She even said that Biden’s upbeat message is not going to work in the face of the grassroots realities.

While the White House economists advance a politically biased analysis of the economy – spinning isolated so-called good news where they can – but they are not addressing the real hardship at the grassroots.  The people are facing INCREASING COSTS at the checkout counter.  So, they are relying on the use of MORE CREDIT at a time when the Fed is INCREASING the cost of credit.

All the talk about job creating … Gross National Product … and stock prices … are not issues that resolve the economic suffering of millions of Americas.  Some folks have enough resources to ignore the economic whammy.  For others, it is somewhat troublesome.  For many, it is pure personal hardship leading to financial disaster.  

Team Biden often claims that the people are just not getting his rosy economic message.  It is only a messaging problem, they say.  Actually, it is the folks in Washington who are not getting the message.  

So, there ‘tis.

Wealth Mgmnt