Main Topic: Americans' credit card debt reaches over $1 trillion for the first time ever.
Key Points:
1. Total credit card indebtedness rose by $45 billion in the April-through-June period, reaching $1.03 trillion.
2. Credit card delinquency rates have increased, with 30 or more days late climbing to 7.2% in Q2.
3. The rise in credit card balances reflects inflationary pressures and higher levels of consumption, while household income remains below pre-pandemic levels.
### Summary
Global governments and central banks have been printing money to fund government spending, leading to high government debt and increased risk of inflation. The recent downgrade of US sovereign ratings by Fitch highlights the consequences of excessive money printing.
### Facts
- 📈 Developed market economies are facing high government debt to GDP ratios and increasing interest rates.
- 📊 Large economies like the US, UK, France, Japan, and China have seen a reckless increase in government debt since 2007.
- 💵 Private sector leverage has been on the mend in some countries, except for China and France.
- 🏛️ The burden of debt has shifted from the private to the public sector due to Covid-era stimulus measures.
- 💸 The bad effects of money printing, warned by economist Milton Friedman, are starting to manifest as bond vigilantes protest against expansionary fiscal and monetary policies.
- 📉 Bond yields in the US and Europe are at levels not seen in more than a decade, constraining government spending.
- 🌍 The challenges faced by developed economies in dealing with their debt burden could have spill-over effects on India and other countries.
### So what?
- 💸 Higher yields will limit government spending, leading to tough choices and posing challenges to economic growth.
- ⚠️ India must be cautious of collateral damage caused by the debt burdens of developed economies, even though its public and private debt appear to be in good shape.
Britain's public debt load has risen by more than 40% to nearly £2.6 trillion ($3.3 trillion) since the pandemic began, causing concerns about the country's ability to service its liabilities and reigniting questions about its credit rating. The heavy reliance on index-linked bonds and the threat of inflation could further worsen the situation, potentially leading to a negative economic spiral that could last for years. The UK's debt burden is already higher than its entire annual economic output, and without action, it could balloon to three times the GDP over the next half century.
Around $1.2 trillion of debt on US commercial real estate is considered "potentially troubled" due to high leverage and falling property values, with office spaces being the most affected and accounting for over half of the at-risk debt that will mature by the end of 2025.
China's local government debt has reached a record 66 trillion yuan ($9 trillion), prompting Beijing to seek a comprehensive solution to the crisis.
The United States has the highest debt in the world, and countries like France, Singapore, Brazil, Hong Kong, and India are among the top holders of U.S. debt.
Despite reaching record levels of total credit card debt and household debt, Americans are actually managing their debt better than in the past due to inflation masking the impact on balances and lower debt-to-deposit levels, according to an analysis by WalletHub. However, the rising trajectory of credit card debt and the increasing number of households carrying balances raise concerns, especially considering the high interest rates, which can take more than 17 years to pay off and cost thousands of dollars in interest. Meanwhile, savers have the opportunity to earn higher returns on cash due to higher inflation and interest rates.
Large regional banks in the United States may need to issue around $70 billion in fresh debt as part of a proposed rule aimed at strengthening the sector's resilience following the failure of three lenders earlier this year.
Gross domestic product (GDP) grew at a rate of 2.1% in the second quarter of 2023, driven by consumer spending, while the Federal Reserve is considering raising interest rates again despite a drop in GDP growth; Americans are increasingly turning to credit cards in a high-interest rate environment, leading to rising credit card debt.
The debt of the United States has reached record levels and continues to grow, raising concerns among investment gurus and market minds about its long-term consequences on the economy and financial markets.
The U.S. federal deficit is projected to double this year to around $2 trillion, largely due to higher interest rates, lower tax revenue, and increased Social Security and Medicare costs.
Despite President Biden's claims of cutting the federal budget deficit by $1.7 trillion, in reality, the deficit is projected to hit $2 trillion this year, with government spending remaining high and the reduction in the deficit primarily due to the expiration of COVID-19 emergency spending.
Approximately $7.6 trillion of outstanding U.S. government debt is set to mature within the next year, raising concerns about how the Treasury will finance its borrowing needs going forward, although the Treasury Borrowing Advisory Committee believes that Treasury can continue to issue Treasury bills given the current levels of demand, according to a letter released last month; the committee also recommended that Treasury take steps to normalize the level of T-bill issuance over time.
The US dollar's dominance as the world's reserve currency is at risk due to growing debt in the US, according to economist Barry Eichengreen, highlighting the importance of controlling debt to maintain the dollar's global role.
U.S. consumers have accumulated $43 billion in additional credit card debt during Q2 2022, three times the average amount since the Great Recession, and credit card interest rates have soared to over 20%, raising concerns about the impact of inflation and rising interest rates on consumers' ability to pay off their balances. However, some economists argue that higher wages are helping consumers keep pace with their debt, and the overall rate of charge-offs remains low. Nonetheless, the combination of spent-down pandemic savings and the resumption of federal student loan payments could pose challenges for lower-income borrowers and hinder consumer spending.
Despite increased household wealth in the US, millions of households are struggling financially due to inflation, high interest rates, and rising living costs, which have led to record levels of debt and limited access to credit.
The US is facing a potential financial crisis as the national debt reaches $33 trillion and the federal deficit is expected to double, posing a threat to President Biden's government and potential consequences for American citizens.
US companies have experienced a 176% increase in debt defaults in the first eight months of 2023 compared to the same period in 2022, with high interest rates pushing businesses into financial distress, particularly in the media and entertainment sector.
The US federal debt has reached $32.94 trillion, prompting concerns from JPMorgan Chase CEO Jamie Dimon about the impact on households, while Congress faces pressure to pass a new budget before potential government shutdown at the end of September.
Leading market experts are raising concerns about the growing US debt, warning that it will lead to higher interest rates and potential economic repercussions as federal deficits increase and US debt supply continues to grow.
Approximately 75% of American workers earning up to $50,000 live paycheck to paycheck, while credit card debt has exceeded $1 trillion, making it difficult for those with debt to save; Gen Z saves more money than older generations due to their experience of the Great Recession, lack of trust in Social Security, and inclination to invest in cryptocurrency.
US Treasury Secretary Janet Yellen believes that despite the national debt nearing $33 trillion, the federal government's debt burden remains under control due to the net interest as a share of GDP remaining at a reasonable level. However, critics warn of the potential risks of a growing debt and credit bubble. Additionally, Yellen hopes for a quick resolution to the United Auto Workers' strike, stating that the economy remains strong overall.
Global debt reached a record $307 trillion in Q2 2023, driven by the United States and Japan, despite rising interest rates hampering bank credit, according to the Institute of International Finance (IIF).
Wall Street feels defensive as the US national debt surpasses $33 trillion and a government shutdown looms, potentially worsening the economy's current issues and increasing the likelihood of a recession, with the shutdown estimated to cost the US economy $6 billion per week and shave GDP growth by 0.1 percentage points in the fourth quarter of 2023.
US credit card debt reached $1 trillion for the first time, but experts argue that it is not a cause for concern as factors like income, wealth, spending growth, credit card utilization, and delinquency rates indicate that consumers are in good financial shape unless the US enters a severe recession.
Kenya's total debt has exceeded Ksh10 trillion ($69.3 billion) in June 2023, with foreign borrowing accounting for 53.51% of the debt, driven in part by the devaluation of the Kenyan shilling, as multilateral organizations like the IMF and World Bank continue to play a crucial role in financing the country's budget.
American household debt has reached record levels in the second quarter of 2023, as Americans have taken on more debt amidst diminishing savings and high interest rates.
Rising interest rates, rather than inflation, are now a major concern for the US economy, as the bond market indicates that rates may stay high for an extended period of time, potentially posing significant challenges for the sustainability of government debt.
The federal debt, which has reached over $33 trillion and is increasing, is predicted to cause a crisis in the near future, leading to high inflation, lower profits for companies, and potential stock market problems, highlighting the importance of diversifying investments.
France's debt has skyrocketed from €1 trillion in 2003 to €3 trillion in 2023, but the government aims to reduce it through the 2024 budget plan; the debt is primarily owed to foreign entities and reducing it would require significant public spending cuts.
The interest on the UK national debt has reached a 20-year high, posing challenges for Chancellor Jeremy Hunt as he prepares for the autumn statement, with the higher cost potentially influencing spending decisions on public services amid demands for pay rises from workers in key industries.
The cost of servicing the US debt is expected to reach a new record by 2025, as higher interest rates increase borrowing costs and push interest payments on the debt to $10.6 trillion over the next decade.
The United States government has added a staggering $275 billion in debt in just 24 hours, contributing to the country's already significant $33 trillion national debt, sparking concerns about its ability to pay essential services and outstanding bills with foreign entities, which could potentially benefit Bitcoin in the long run as it tends to perform well when global liquidity increases.
Pakistan's central government debt has risen by almost a third to reach close to Rs64 trillion, with domestic debt accounting for most of the increase and impacting funds available for development and economic growth.
The US government's debt has increased by over half a trillion dollars in just three weeks, leading to warnings from Senator Cynthia Lummis and billionaire Ray Dalio about the potential consequences for future generations.
