The only thing left driving US consumption is credit

WHY AMERICAN DEBT ADDICTION WILL PROVE TO BE SUICIDAL

I spotted this one yesterday on Twitter:

USCredDEc

There’s nothing unusual about a big jump in credit usage during December – it’s called Christmas. You know, the celebration of the Nazarene’s birthday. You must remember it: the bloke who said ‘give all your money away if you want to get into Heaven’ has his birthday marked by the tradition of borrowing money you didn’t give away yet in order to celebrate his arrival on Earth.

What’s surprising is how much more credit was used to out-gift the Jones’s than the expert consensus expected – nearly one third more at just over $21 billion. But overall sales in December were the worst on a like-for-like basis since 2009: the season was saved from even deeper gloom by a last-minute buying spree. Such late surges are almost always credit-card dominated.

America is the most credit-addicted nation on earth, where the average credit card debt level per household is a whopping $15,355. Since 2010, the sum has actually dropped in real terms, but only by a very small amount: and you need to take account of how misleading that average can be.

1 in 5 Americans can’t get approval for a credit card, so when added to those who choose not to have a card at all, the ‘average’ is nearer to $18,500. Then you need to add on car loans at $12,300. The degree of dependence on credit is reflected by the fact that, while household income has grown by 26% since 2003, the cost of living has gone up 29% in that time period. And stuff like medical insurance, food and housing rises have been closer to 40%.

The more one drills down, the more scarey it looks: 1 in 3 American adults have debts that have been passed over to debt collection agencies. Three quarters of all household debt is in mortgages, a reflection of how borrowers have been into ‘extend and pretend’ for some time now.

This is the bottom line: as the credit information Cardhub notes, “Such levels of hugely expensive debt are unsustainable”. Without credit, auto sales would collapse. Without Zirp, the entire domestic economy would collapse. With too many more rate rises from the Fed, 44% of American household finances would collapse. As and when interest rates return to normal – say at 3-4% – two out of every five US tax dollars will go just on servicing the American national debt.

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These realities are what makes the day-to-day debates on CNBC, CNN, BBCNews and Boombust TV a surreal thing to tune into. Not just surreal, but also abstract – because the terms used are in the syntax of yesteryear. The equivalent, in fact, of Mark Carney facing a media conference and announcing the devaluation of the Guinea.

Growth is one of these silly nouns. There hasn’t been any earned-income and expenditure growth in the US this century. It is overwhelmingly brought-forward consumption fuelled by debt.

Discretionary income is another. If 30% of your debt-spending goes on plastic-bashing and car loans, and 75% on mortgage repayments, not only does that come to 5% more than your credit line – hence the 1-in-3 stat above – it also amounts to an average figure of $120,000 a year. The median US income today is around $53,700. The vast majority of Americans have negative discretionary income….aka, debt.

Savings ratio is an equally potty measure in that context. 62% of Americans have less than $1000 in savings. 76% of Americans describe themselves as “living from paycheck to paycheck”. Just under 50% of US households have no retirement savings at all.

Recession – as in “we are not in a recession and we are not heading for one” – is probably the most bizarre assertion of the lot. Without QE (which the Fed ‘counts’ as gdp), Zirp (and now Nirp) and credit based brought-forward consumption, the United States economy wouldn’t be in recession: it would be flatlining.

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The focus on America in this piece is quite deliberate, but has the best of intentions. The United States with $17.4 trillion has a 22.5% share of global gdp. Troubled China at 14% (and falling) is still way behind. The EU is closer, but not a Sovereign State.

In real (by which I mean ‘get real’) terms, the wealth spread, demographics, debt levels and credit culture in America means the US élite will never allow ‘rates’ to return to anywhere near normal. To do so would be to bring on the following inevitabilities:

  1. Crashed US domestic economy unable to maintain sales…in a country long since over-dependent on such sales given its expensive export dollar
  2. Crashed US banking system unable to call in debt assets
  3. Exploding trade deficits as pauperised US consumers buy Asian
  4. Disastrous retail & manufacturing bankruptcy levels
  5. Trebled unemployment & consequent social instability
  6. Increased taxes to service Sovereign debt
  7. US Sovereign default
  8. Given massive levels of US imports, total collapse of the global economy.

I do realise people think I’m bonkers for sticking to this view, but we have an alternative to US hegemony developing on the planet, and before too long that axis will be empowered in several ways:

  • It can renege on Dollar-denominated debt. This comes under the social resistance heading of “they can’t send all of us to jail”
  • It can massively reduce US petrodollar income
  • It can up rates to attract investors desperate to preserve their wealth
  • It can cut Washington out of future trade deals – just at a time the US is most likely to need such deals.

 

The US is running the show in 2016. But its debt culture will one day fatally undermine that omnipotence. Without drastically reforming that culture (and learning new foreign policy manners) the US will drag itself over the cliff faster than most people think.

24 thoughts on “The only thing left driving US consumption is credit

  1. Are you able to turn your intelligent gaze upon ‘The Housing and Planning Bill’ currently making its way through the House of Lords as a symptom of the times, and as an indicator of where we are heading as a nation and people?

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  2. If you really take the time to understand the concept of the post Nixon shock petrodollar paradigm and then contrast this with a strict Marxist hard money=value=productive labour approach then the world just starts to looks like some kind of bizarre circus.

    There is no way to avoid the cyclical nature of these things, all societies build, prosper then collapse it is written through history and cemented by the basic nature of man’s decision making to be influenced by his lifespan. This is visible in the current crop of grubby career politicians hanging on to their jobs with their fingernails and through their greed and selkf interest consigning good governance to the rubbish bin.

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  3. And I suspect that all the above is the driver for the US increasing its spending on their military machine.
    In the mind of the US, the US will ALWAYS run the show. They are never going to give up their hegemony, they’d rather nuke the world than come second.

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  4. excellent analysis JW. a real take that will not be seen in the drivel that comes from ‘professional’ economists. Looking back the US of A was well bankrupt by the time of the dotcom collapse in 2000. Its probably why they had to forget ‘glass-seegal’ to carry on the con. Loan sharks loaded with financial weapons of mass destruction (derivatives) now need to make us all impoverished slaves to carry on the con. The sooner it collapses the better it will be. The systemic collapse happened when they started to try and print their way out of debt. its a zero sum game that has never worked at anytime in financial history.. Once they begin to print there is no stopping.. the roundabout goes round faster and faster until it flies to pieces. We can hope that an alternative becomes available soon or make one ourselves based on real money and not monopoly money..

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  5. i was reading from a Japanese banker about how his job required him to lend a minimum amount of freshly printed yen each month. Easy, but the problem was that he had to be personally liable for the debt if it defaulted..

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  6. Well there we go, if a life style requiring four planet earth’s is to be aspired too, then somebody somewhere was bound to do that rather simple maths based on one planet. What with one dream equating to three nightmares, it sort of looks a bit broken to this fool. If I were younger I might be a tad upset, well just plain angry, with the selfish bastards of today who borrowed from the future. I tend to agree with them. Avarices, now there’s an interesting word too.

    This seemed apt:

    There may be trouble ahead,
    But while there’s moonlight and music and love and romance,
    Let’s face the music and dance.

    Before the fiddlers have fled,
    Before they ask us to pay the bill,
    And while we still have the chance,
    Let’s face the music and dance.

    Soon, we’ll be without the moon,
    Humming a different toon,
    And then, there may be tear drops to shed.
    So while there’s moonlight and music and love and romance,
    Let’s face the music and dance.
    Let’s face the music and dance,

    Way to go Nat. Nice!

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  7. I know which side my bread’s buttered. The US stands behind me here on Airforce 1 and I’m happy for them to be financial artisans and do their thing as they are the very best brains in the world with a ‘can do’ attitude. God help me if I ever have to look up to a china, japan, russia or germany. God Bless America.

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  8. I admire your resolute commitment Rioch, a rare sight these days.

    To my stoic eyes, the full wait of the confidence card has been played-out & I just don’t see a rerun of 1929 onward. Each to there own & good fortune.

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  9. JW – another superb article – sometimes I feel like some eccentric loon when I discuss the way the financial ‘wizards’ have created this bizarre fantasy world that has no correlation with reality. I continue to visit the Slog for moral support in my lunacy.

    @IP Great comment,

    @Ricoh I have to conclude that you are writing for comic effect.

    The MIC and usury are the only games left in town for the U.S. This is the inevitable result of the exponential nature of compound interest. It is precisely why the ancients instituted debt jubilees on a regular basis. It seems as if the U.S. people have been the victim of ‘their’ own Economic Hitmen turning their attention to the U.S. nation itself.

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  10. Most of us in the US are asleep, tis true. As John points out, waking up isn’t all that pleasant. Yet it is the same in every major nation. There is a core of belief about your nation that no matter if true, causes you to believe something another national won’t. Each nation looks at another and sees irrational beliefs and wonders. They never point the lens on themselves, always waiting for someone else to point something out so that they can deny it as xenophobia. Our governments do an effective job making everyone else look vile for the reason du jour. It seems they promote nationalism and pride only to use against another nation, another tool for control. They have to make enemies of neighbors to hold sway.
    The US is so xenophobic as a nation, that we have made few friends for a long time. The state itself likes enemies. The people, no. So how do we rid ourselves of a parasite killing us slowly without killing the body quickly?

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  11. And unless you are asleep, the system has broken folks. You have seen enough to know that today, all the banks are broken because they traded with each other. I think there are two exceptions. The bank of Lebanon and the Bank of North Dakota, who would not play with usury, mortgage backed securitized nothing, CDS, etc. Somehow they said no and have been doing fine. The stock market has crashed monthly, like 1929, the value is gone, there is nothing left to hock to by another 20% financial product with risk factor of 98%. The only gamble you can win is to keep what you have if you can, because risking it with your government or the market is the same as being the last person to buy into a ponzi scheme. You think you are chasing yield to make a small gain by risking everything you have. Not a good bargain if you want to keep eating.

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  12. I do wonder at how so many give the US a kicking. The people who – when push comes to shove – will be the first to ask for America’s help when threatened by external forces. These people have short memories. Without USA we would be dominated by the german race ( excluding the european circus, which is another battle in progress) – not to mention our forebears who gave us their today for our tomorrow.
    The Senotaph…”we will remember them” – spineless hypocrites who think/speak otherwise.
    You should be ashamed of yourselves. Really.

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  13. Rioch, I think you might that that Russia’s sacrifice and effort was considerably greater than anything America every did. Like the 20 million who died to defeat Nazi Germany. Lest we forget while the BBC and Fox News keeps smearing Russia.

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  14. @WAD

    Thank you – more sense than is spoken by most politicians and economists these days. It seems it takes a comedian to tell the truth.

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