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Credit Card Debt: America’s Looming Crisis




Almost a decade later, the 2008 financial crisis may seem like a distant memory to some. However, current trends in national credit card debt suggest that the next crash may just be on the horizon.

The Federal Reserve has reported that consumer credit card debt has reached a staggering $952 billion in the first quarter of this year. Comparing this to 2008, the year of the global financial crisis, the United States reached a record-breaking $1.02 trillion in outstanding credit balances.

Analysts are suggesting that if the total debt continues to rise at its current rate, the country is getting perilously close to another recession.

Credit Card Debt Has Been Steadily Increasing

The chart below outlays the revolving debt American’s have since 2010

credit card debt america


Over the last year alone, the total amount of consumer debt has risen by over $70 billion:



The reason behind this growth is contested amongst experts, but a prominent theory suggests that American consumers are simply becoming more willing to carry larger amounts of debt, increasingly so as the last financial crisis fades into memory.

Americans Aren’t Paying Off Their Debt

Over one third of American households remain in debt from a month-to-month basis, with the average level of household debt currently resting at over $15,000. In addition, the amount of interest being generated by these outstanding accounts is making it even harder for those in debt to work their way out of it.

American households that don’t carry a credit balance are more of a rarity than anything. Only 35% of credit card holders manage to fall into this category, using them to generate reward points rather than to borrow money they don’t have (

It is not uncommon for borrowers to ultimately wind up paying multiple times the original amount lent through interest (

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Americans Are Saving Less Than They Used To

The last financial crisis caused a large portion of Americans to be much more frugal in their spending habits. In 2008, personal savings was roughly 4% of total income for the average American, which skyrocketed to 11% by 2012 (

Now that the current rate of savings has gone back down to 5.4%, it suggests that Americans are becoming increasingly comfortable with looser spending habits, relying more heavily on borrowed money for large transactions.

Average Cost Of Living Is Increasing Faster Than Income Growth

The average income of the American household has increased significantly over the last decade, but it hasn’t necessarily increased average savings per family. The cost of medical care has inflated by over 50%, and groceries are 37% more expensive than they were in 2003 (

cost of goods vs income

Barack Obama’s plan for universal medical care promised to ease the average family’s medical expenses by as much as $2500. Since his election in 2008, however, premiums have increased by an average of $4800 per household (


An Increasing Reliance On Subprime Borrowers

Over 10 million new credit cards were given to subprime consumers in the last year alone, representing a 25% increase from the end of 2014. This is the highest level it has ever been since 2007, right before the financial crisis.

On the other hand, banks that fall into this trend are making some efforts to keep history from repeating itself. One of the main strategies being employed requires the borrower to make an initial deposit that will represent the spending limit of that card ( In the same way an auto loan is secured to the lender through the actual vehicle, having a required deposit may be an effective strategy to cover potential losses on credit loans.

Lucrative Returns For Credit Card Loans

There is actually a lot of variance in profit levels between banks when it comes to credit card loans. The industry average falls at around 12.4 cents per dollar on outstanding balances, but among the top-earning banks the average sits closer to 28.4 cents (

Analysts suggest that consumer habits have a lot to do with some of the steep rates these banks are charging. Many borrowers can be reluctant to research what other kinds of deals are available to them and will pounce on the first seemingly reasonable opportunity they happen upon. In addition, credit lenders will often advertise rewards and discounts for their cards in order to distract buyers from high interest rates and hidden fees.

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Banks Pushing Incentives For Credit Cards

Hundreds of reward-based credit card options are available for consumers, saturating the market with options. This variance in potential reward avenues give further incentive for the average consumer to own more than one credit card and add to the average household debt.

A recent study ranked the most valuable reward cards in terms of the monetary value of their rewards over a two-year period. The top 5 issuers were:

  • Barclaycard – $1,529 (Arrival Plus)
  • Capital One – $1,482 (Venture Rewards)
  • Chase – $1,338 (Sapphire Preferred)
  • US Bank – $1,151 (FlexPerks Travel Rewards)
  • Citi – $1,141 (Double Cash Card)

Comparing 2016 to 2008: Is The Threat Real?

As the previous evidence suggests, consumer debt is currently at the same place it was before the recession hit in 2008. While credit card debt certainly was a factor in the market crash, much of it was due to subprime housing loans. In 2016, the bubble is now being inflated by loans to foreign governments.

The Japanese government’s debt is now twice that of its national GDP, takes a quarter of its entire tax revenue just to pay the interest, and yet the U.S. government is willing to pay Japan to borrow money at negative interest rates. This trend has accumulated over $7 trillion dollars of debt, adding to the $19 trillion owed by the government in total (

Compare this to the $9.5 trillion owed in 2008, and you can see why a lot of experts are getting worried.


It is rare that events in history play out exactly the same in every respect, particularly in the realm of finance. However, the amount of similarities between pre-recession America and now are certainly raising questions as to how far away the next financial crisis really is.

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American Consumers Will (Or Won’t) Drive The Economic Recovery




American Consumers Will (Or Won’t) Drive The Economic Recovery

If you are wondering how the stock market has climbed nearly 30% from the March 23 lows while the country has lost 20 million jobs in April, you’re not alone.

It’s head-scratching to try and think of a scenario where stocks are worth as much or almost as much as they were back in February when the country had a 3% unemployment rate compared to 14.7% today.

A common refrain from analysts and Wall Street veterans is that the stock market is forward-looking. So everything bad happening today has already been priced in. Or perhaps with parts of the country slowly reopening, that the economy will quickly spring back to life. Maybe there’s justifiably a belief that no matter how bad things get, the Federal Reserve will step in and flood the market with liquidity, effectively removing any downside risk.


Whatever the real reason is for the surge in stock prices since late March, there’s one thing that many analysts say will either spur the market higher or send it crashing back down to the March lows: you and me, the consumer.

“It’s all going to come down to consumer spending. If we’re all sitting inside and not out spending money in September-October, the market’s not going to like that — the market will go down,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute, in a recent interview.

Consumer spending accounts for roughly 65% of our country’s GDP. So if consumers don’t feel comfortable leaving their homes and getting back out to shopping centers, malls or restaurants, it’s going to be nearly impossible for a sustained economic recovery.

Richard Cordray was the first director of the Consumer Financial Protection Bureau. He says consumers “are likely to come out of the covid-19 crisis no longer able, or willing, to bear the same load as before. That means that Wall Street investors counting on ordinary families to continue propping up the business cycle are likely to be sorely disappointed.”

“First, the rapidly deteriorating job market will hurt consumers badly, and for many the damage will not be temporary. Until last month, unemployment was at historic lows: It was 3.5 percent in February. More hours worked meant more income for most families while pushing the wage curve higher. All that positive momentum is gone. Unemployment is certain to spike above 15 percent soon, and many small businesses that operate on thin margins will go bankrupt.

“Second, many businesses will not regain the same vigor because they are dependent on strong consumer demand. Inevitably, some Americans will remain unemployed longer than others. Those who go back to work quickly are still likely to emerge from their experience of sheltering at home with less ability to resume spending at the same levels. Large numbers of households are falling behind on major debt obligations, such as rent or mortgage payments, auto loans, and credit card bills. Even those who return to pre-crisis jobs will have to cope with the burden of this overhanging debt, which will constrain their discretionary spending for months or even years to come.

“Third, the wrenching experience of the covid-19 pandemic is likely to change many consumers’ behavior. As happened in the Great Depression, this crisis has reminded people of the fragility of their financial situations, making them more cautious about borrowing and spending. Social changes, too, are likely to linger. Until people feel sure about an effective vaccine and manageable treatment for the virus, they may be reluctant to travel or even to circulate as widely as they used to, producing lower levels of economic activity overall.”

The Effects of Job Loss

And Avi Dan, the CEO of Avidan Strategies, says the damage from the unprecedented job losses could last for years in what he calls “America 2.0”

“After most recessions had ended, consumers’ attitudes and behaviors often return to “normal” within a couple of years. This time it may be different. Given the unprecedented extreme events we are witnessing, consumers’ optimism just might be replaced by a heightened sense of economic vulnerability. Caution might replace consumerism, and this could persist for a decade or longer.

“Given these facts, there is a good possibility that consumer attitudes and behaviors, shaped during this recession, will linger substantially beyond its end, as we enter a new national phase, America 2.0. The majority of consumers may well retain the different consumption habits developed during the recovery with what they’ve adapted to during the recession.”

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US Consumer Spending Up Modest 0.2% in February




US consumer spending up modest 0.2% in February

WASHINGTON (AP) — Americans increased their spending by a modest amount in February but the expectation is that spending will be hit hard in coming months reflecting the shutdown of the American economy by the coronavirus.

The Commerce Department reported Friday that spending edged up 0.2% in February, matching the January gain but below the 0.4% increase in December.

Personal incomes rose a solid 0.6 percent in February, matching the January gain. Those strong increases are likely to fall-off as millions of Americans lose their jobs although the Senate has passed a $2.2 trillion economic relief package that would cushion the blow by providing checks of up to $1,200 to individuals and expanding unemployment benefits.

The hope is that the relief package, which was expected to clear the House Friday, will keep the economy from falling into a deep recession because of the shutdowns. The Federal Reserve has also moved to slash its key interest rate to a record low near zero and is providing billions of dollars in support to keep credit flowing.

Economists have said all these efforts will not be enough to keep the country out of a downturn, but they could help promote a stronger and quicker rebound once the virus is contained.

A key inflation measure was up 1.8% for the 12 months ending in February, according to the latest data, below the Fed’s 2% target. The absence of inflation worries has allowed the central bank to focus on supporting economic growth.

Consumer spending accounts for 70% of economic activity but surveys are already showing the virus is having a big impact on the biggest driver of the economy. Coresight, a data research firm, found that almost half of U.S. consumers — 47% — are now extremely concerned about the outbreak, up 10 percentage points in just one week.

“With high-frequency data showing a collapse in economic activity over the past couple of weeks, overall consumer spending is likely to have plummeted in March,” said Andrew Hunter, senior U.S. economist at Capital Economics.

Hunter said he was expecting around a 40% decline in consumer spending in the April-June quarter.

Many economists believe that a recession has already begun although they are forecasting it could be a short one, lasting only two quarters, if the government’s efforts to contain the coronavirus are successful.

The Trump administration is hoping to get the new programs in the $2.2 trillion relief package up and running quickly. Treasury Secretary Steven Mnuchin said Friday he wanted to get a program to supply small businesses with bank loans operational in a week and IRS payments of up to $1,200 per individual being sent to households in three weeks.

Asked in an interview on Fox Business Network about the record 3.3 million applications for unemployment benefits reported on Thursday, Mnuchin said, “These numbers matter because people are losing their jobs.” But he said the government programs in the rescue bill should either get people back to work or supply financial support until they can find new jobs.

The 1.8% 12-month rise in the inflation gauge tied to consumer spending has been below the Fed’s 2% target for more than a year and now is expected to fall even lower with the drop-off in economic activity and a big fall in energy prices.

The spending report said that the personal saving rate rose in February to 8.2% of after-tax income, the highest level in 11 months and up from 7.9% in January.

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Bill Gates Joins Growing Chorus Against Trump’s Plan to Reopen Economy




Bill Gates Joins Growing Chorus Against Trump’s Plan to Reopen Economy

Bill Gates is the latest in a growing chorus to voice concerns over statements made by President Trump that he would like to get America’s economy running again by Easter.

During a recent TED talk (as reported by Recode), Gates said “it’s very irresponsible for somebody to suggest that we can have the best of both worlds,” implying our ability to contain the virus and keep Americans safe while keeping the economy open and running at full speed.

He added “There really is no middle ground, and it’s very tough to say to people, “Hey, keep going to restaurants, go buy new houses, [and] ignore that pile of bodies over in the corner. We want you to keep spending because there’s maybe a politician who thinks GDP growth is all that counts.”

Trump has said he wanted to re-evaluate his administration’s initiative to slow or contain the spread of the virus which included “social distancing.” 

The initial 15-day period ends next week and on Tuesday during an Fox News town hall, Trump said “I give it two weeks,” suggesting he was ready to end the 15-day self-isolating guidelines when they expire. 

“I guess by Monday or Tuesday, it’s about two weeks. We will assess at that time and give it more time if we need a little more time. We have to open this country up.”

He added “I would love to have the country opened up, and rarin’ to go, by Easter” and “people can go back to work and practice good judgment.”

Trump reasoning for the accelerated timeline is that the longer the economy is effectively shut down, the longer it will take to get it up to full speed.

However, Gates is just one of a growing chorus of experts and politicians who worry that pushing the economy to reopen in an effort to help the stock market recover is ignoring the very real likelihood that we would be putting citizens at danger if the spread of the virus isn’t under control.

New York Gov. Andrew Cuomo, whose state is battling the highest number of coronavirus cases in the US, made similar comments to Gates on Tuesday.

“No American is going to say, accelerate the economy at the cost of human life, because no American is going to say how much a life is worth. Job [No. 1] has to be save lives,” he said.

Maryland Gov. Larry Hogan, a Republican and head of the National Governors Association, expressed concern over the need to meet a schedule on an “imaginary clock.”

No matter how much pressure President Trump places on governors or even citizens to get back to work, legally there’s not much he can do.

Legal experts say a U.S. president has quite limited power to order citizens back to their places of employment, or cities to reopen government buildings, transportation, or local businesses.

The policies that Trump announced on March 16 for slowing the spread of the novel coronavirus (such as social distancing) were merely guidelines, and the same goes for any newer, less restrictive policies he unveils, according to Robert Chesney, a professor of national security law at the University of Texas.

“Those are guidelines. He can change his advice,” Chesney said. “He is free to advocate. And that is an important part of the presidency — the bully pulpit.”

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