A couple of weeks ago we touched on the fact that the data is abundantly clear, the US consumer is currently tapped out and has hit a wall. This is evidenced by the fact that new consumer credit generation came in 90% below expectations in December of 2023 and 30+ day delinquency rates are rising sharply as the high interest rate environment has pushed American consumers, who were going into more debt due to desperation brought on by years of consistently high price inflation, out of the credit markets.

Consumer Credit Hits The Wall

Earlier today the Federal Reserve Bank of New York released a report on the state of consumer credit. Dissecting data across student, auto, mortgage credit card, and other similar types of loans that US consumers have taken out and painting a bleak picture of the state of the average American.

TFTC – Truth for the CommonerMarty Bent

Here's a data point that came across my Twitter feed earlier today that highlights the severity of the situation more acutely; outstanding personal interest payments.

Collectively American consumers have interest payments of more than half a trillion dollars. This is an astonishing number. Especially considering the fact that it doesn't even take the principal of the debt into consideration. Just look at the chart. That is the definition of "hockey stick growth", and unfortunately for the US economy it is not a chart that one would ever want to see exhibiting hockey stick characteristics. The new nauseating heights of interest payments are ~57% higher than they were four years ago right before COVID hysteria hit in 2019. Once the economic lockdowns hit, people weren't allowed to go out so they paid down their debts, which was accelerated by government stimulus checks.

Well, this was a very short-lived deleveraging event as personal interest payments are up well over 100% since 2021. This is your economy on central planning. This problem has been bubbling up for the better part of two decades post-2008. The reaction to that crisis led to insane amounts of risk that were allowed to permeate through and build up within the system. Prolonged ZIRP created a hyper-levered economy that passed the event horizon and became completely impossible to unwind. When the Fed tried to reverse their ZIRP policies beginning in late 2015 by slowly raising interest rates, they were forced to reverse course in the middle of 2019 with the Fed Funds Rate around 2.4% as liquidity problems began to materialize throughout the banking system. Most significantly in September of 2019 when the over night repo markets spazzed out. Luckily for the Fed, a global pandemic materialized a few months later and they were able to accelerate their rate cuts back to the zero-bound in a matter of two months in March and April and expand the monetary base by more than $6 TRILLION between 2020 and 2022.

These actions, coupled with the lockdowns, led to massive dislocations throughout the economy that created a supply and demand imbalance of goods and with the massive supply of dollars that flooded the market for those scarce goods, prices went up at their fastest rate since the 1970s. The problem with central planning is that it has the potential to create temporary periods of perceived comfort. In the immediate aftermath of the lockdowns people were scared, but many felt as if they were financially secure. Especially if they were working in the digital economy. This perceived comfort led to a slew of large purchases in the form of real estate, cars and stock portfolios, which sent all of these assets to all time highs.

Slowly but surely over the course of 2021 and 2022 inflation began to materialize in earnest. At the same time, it began to become clear to anyone who was paying attention that the exuberance that the economy was floating on nothing but hot air. Eventually, the CPI (which drastically under reports inflation) was coming in consistently above 10% and the Fed was forced to begin raising rates at a rapid pace.

This took all of the hot air out of the economy, companies who were prioritizing growth at all costs instead of running profitable businesses were forced to begin cutting their headcounts in earnest at the beginning of last year, and even though the rate of inflation as defined by the CPI has fallen significantly prices throughout the economy are still sitting on a much higher base. The result of all of this is an absolute clusterfuck of epic proportions as is made evident by the historically high interest expenses that Americans are currently paying on their debt. The central planners successfully rug pulled everyone.

The most insidious part of this is that the damage has been done and there still isn't a way out other than more debasement. A temporary recede in the rate of inflation is just that, temporary. Push is coming to shove. The American consumer is laying on their back all battered and bruised in a chaotic ocean of debt and job prospects that are getting worse by the day. One has to wonder how much more pressure can build before the system collapses in on itself again.

The greatest trick the Devil ever played was convincing the world that the global economy needs to be micromanaged by academic economists who manipulate interest rates and the supply of money while simultaneously telling you that sound money is bad for the economy.

How much longer will it take for the Common Man to realize that the central planners are ruining his life?

Final thought...

I liked the latest True Detective season.