Wealth Mgmnt

Credit Card Debt is Sinking the Kitchen Table Economy

President Biden never loses an opportunity to brag about how he has produced the strongest economy in the world. The stock market is soaring to record highs. The Gross National Product looks good.  Consumer spending his high.  And Biden takes credit for creating more jobs than any President in history.   The “economy” is doing great thanks to President Biden’s signature “Bidenomics” policies.  So, he says.

Biden & Co. are seemingly bewildered by the fact that the American people do not agree.  As far as the folks back home are concerned, the Biden economy sucks.  As much as 60 percent of the working class say that the economy was better under President Trump – and they trust him to produce a better economy in the future than Biden.

Of course, Biden’s job creation claims need an asterisk.  Most of the jobs he claims to have “created” were the natural return of workers heading back to their jobs as the Covid Pandemic slipped into the rearview mirror – and the robust return was significantly due to the Trump administration producing a vaccine in record time.  Trump often says, “no one has seen anything like it” when talking about his accomplishments.  In the case of the vaccine, that is literally true.  If you look at the new jobs over-and-above the end of 2020, the real job “growth” has been rather anemic.

In terms of the consumer spending that is driving the economy, that also needs to be put into perspective.  It is not healthy spending.  American consumers are using – actually misusing – their credit cards to stay ahead of inflation while contributing to inflation.  They are buying now, hoping to pay off later.

The latest report on credit suggests a crisis.  Currently, credit card debt has reached an unprecedented $1.12 trillion.  With 15 percent of credit cards maxed out.  The delinquency rate is the highest in 12 years – and that was in the middle of what has been referred to as the “great recession.”

The delinquency rate varies significantly by generation – hitting hardest on Gen-Z at 15.3 percent.  It is 12.1 for Millennials, 9.6 for Gen-Y and 4.8 for Boomers.  For millions of Americans, the credit crisis is not looming, it is here and now.

The issue for the average person or family is the “credit trap.”  That is when they can barely keep up with the monthly interest charge – much less pay down the principle.  As a result, they are often forced to pay the required minimum – and that is nothing less than credit enslavement.

We have all seen the portion of the bill that explains how long it will take to pay off the debt based on the “minimum payment,” it is years and even decades.  AND … that is the case only if the person does not use the card ever again.  Charge a few more items, and the interest costs to up and payoff stretches further into the future.

Based on income and other expenses, paying off the credit cards becomes essentially an impossibility.  People are stuck forever with that exorbitant interest payment each month.  For some, the interest on their credit debt is higher than the car payment — or even the interest on the mortgage.

Falling into the “credit trap” is not limited to folks who have maxed out on their credit cards, it is merely the point where the monthly credit payment cannot be paid from current income.

The unfortunate truth is that credit buying cannot continue to float the economy.  As more and more people fall into the “credit trap,” their ability to spend on credit will decrease.  That will result in lower consumer purchasing.

That may already be starting.  Consumer purchasing took a significant drop in April – and 2024 was still running 30 percent below the Trump 2020 levels.

While credit card spending is temporarily good for the stock market and the GDP – and gives a false appearance of a strong economy — it has been a worsening disaster for more and more Americans.  And this on fop of student loan crisis created by Democrats – with Biden playing a key role in Congress.  Peddled as a benefit to students, the loan probrams was designed to benefit the banks and enrich the colleges and universities.  In that regard, it was unfortunately very successful.

Folks caught in the credit card trap have few options – and none of them are easy or good.  They can try to cut expenses further or add to their income.  They can default or file for bankruptcy.

The only thing Uncle Sam – who caused the crisis – can do is to try to write off student loans – an unfair and offensive plan of dubious constitutionality.  Neither Biden nor the Congress can do that with personal credit card debt.

In the longer run, Congress could take up a comprehensive credit reform bill (which I have been proposing since the crisis of the 1970s) – but that is a long-range solution and one I will cover in a future commentary.

It is a simple truth that you cannot borrow your way to economic health and security – whether you are a person or a nation.  And no among of campaign happy talk by  Biden can alleviate the economic pain and suffering endured by millions of Americans.

So, there ‘tis.

Wealth Mgmnt