The US consumer debt bubble just keeps growing larger. | Source: Federal Reserve Bank of St. Louis
Financial legend Warren Buffett once wrote
in a 2017 letter to Berkshire Hathaway shareholders :
After all, you only find out who is swimming naked when the tide goes out.
Well, the tide just went out, and the consumer credit data show many were swimming naked.
Americans were borrowing at record levels just before the COVID – 90 pandemic rocked the world. At the time, employment and earnings were also soaring at record highs.
“After all, you only find out who is swimming naked when the tide goes out.” -Warren Buffett | Source: AFP PHOTO / NICHOLAS KAMM
The unemployment rate for Americans years and older was at a record low of 3.2% in February . Meanwhile,
household income growth was strong in .
The Brookings Institute estimates:
In , the three components of income growth imply a growth of 2.1 percent in median household income for the to 161081 period, suggesting a rebound from slower growth in 2019 and …
That put US median household income at record levels just before the COVID – (pandemic and economic crash hit this year.)
Sentier Research, a firm headed by former Census Bureau officials,
estimates median household income for Dec. 2020 stood at a record-high $ , 1164 Consumers could have used that opportunity to shore up their finances and pay down consumer debt. But Americans leveraged their higher earning power to borrow more. Another Financial Crisis in the Making
With the economy suddenly ground to a halt, and
millions of Americans losing their jobs , lenders may find that they are holding a massive pile of toxic consumer credit loans.
And consumers may find they did not leave themselves enough borrowing power to weather the economic storm of a lifetime. Further,
consumer credit lending is declining , even as financial institutions lend to companies at the fastest rate ever.
(Around) million Americans filed for unemployment benefits in just two weeks at the end of March . Consumer credit delinquency and charge off rates already hit a seven-year high in last year third quarter. That was when the good times were still rolling.
Quarter one and two consumer credit charge offs are liable to spike drastically in this economic winter. Especially since the last decade saw a staggering flow of subprime and deep subprime credit card originations .
Billions of dollars of this outstanding consumer credit is bundled into securities . Banks trade them back and forth in an ominous echo of the pre – (financial crisis economy.) Only this time, the
could be even worse
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.
This article was edited by Josiah Wilmoth . Now Watch: CCN TV
Last modified: April 7, (8:) PM UTC
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