Hi Sam! Herb gave you a nice shoutout and I’m curious about your newsletter!
> The U.S. consumer continues to buy, but he's putting it on his credit card… Credit card debt recently exceeded $1 trillion. Americans are paying an average interest rate of 28% on that.
Unless I’m severely mistaken, this number includes all credit card debt, including the debt within the grace period before interest accumulates. The vast majority of credit card holders pay their balances on time and don’t incur any interest costs.
It’s always nice to put any amount into perspective by providing a suitable denominator, ie divide credit card balances by disposable income or nominal GDP. When you do that you get a very different picture.
Bob Elliott and Lyn Alden have done that kind of analysis on twitter and I recommend their work.
Thanks for the note, Tian. You’re correct, and people are paying it off until they can’t... with so many Americans’ savings drained, a lapse in employment or a missed payment could spell disaster for many.
your reply doesn't really address tian's point, but perhaps the data isn't easily available. if we could subtract increases in debt from increases in income we might get a better picture.
if people pay their balances monthly, as i would guess all your readers do, then an increase in current credit balances would just represent an increase in spending, not an increase in debt or debt burden.
Fitch Ratings-New York/London-29 November 2023: Fitch Ratings estimates the total debt service to income ratio of U.S. households will increase to 11.7% by 2025 from 9.9% in 2022, a relatively modest increase despite recent sharp increases in market interest rates on new household borrowing.
Where did you read that the vast majority of Americans pay their balance every month? I’ve read that a significant percentage of Americans are still paying off 2022 holiday spending, and with student loan pmts resuming, pandemic stimulus drying up, and an increase in “revenge” travel that credit card bills are getting higher and not necessarily paid off. Perhaps the fallout will become evident in 2024 as Sam has suggested.
> Card debt “problem” is pretty overstated on macro level. That’s cause about half of folks who use cards fully pay it off. Essentially getting a revolving 50d float and never pay this rate. And that’s in numbers, in dollars likely to be much higher in dollars.
Lyn Alden is great. She’s the only one who could make me think that Bitcoin is a useful asset (her interview with Jack Farley on Forward Guidance was instructive).
Bob looks at all the available data when it comes to wages, inflation, economic activity, etc. I love that attitude.
Hi Sam! Herb gave you a nice shoutout and I’m curious about your newsletter!
> The U.S. consumer continues to buy, but he's putting it on his credit card… Credit card debt recently exceeded $1 trillion. Americans are paying an average interest rate of 28% on that.
Unless I’m severely mistaken, this number includes all credit card debt, including the debt within the grace period before interest accumulates. The vast majority of credit card holders pay their balances on time and don’t incur any interest costs.
It’s always nice to put any amount into perspective by providing a suitable denominator, ie divide credit card balances by disposable income or nominal GDP. When you do that you get a very different picture.
Bob Elliott and Lyn Alden have done that kind of analysis on twitter and I recommend their work.
Thanks for the note, Tian. You’re correct, and people are paying it off until they can’t... with so many Americans’ savings drained, a lapse in employment or a missed payment could spell disaster for many.
your reply doesn't really address tian's point, but perhaps the data isn't easily available. if we could subtract increases in debt from increases in income we might get a better picture.
if people pay their balances monthly, as i would guess all your readers do, then an increase in current credit balances would just represent an increase in spending, not an increase in debt or debt burden.
Fitch Ratings-New York/London-29 November 2023: Fitch Ratings estimates the total debt service to income ratio of U.S. households will increase to 11.7% by 2025 from 9.9% in 2022, a relatively modest increase despite recent sharp increases in market interest rates on new household borrowing.
but these numbers are dominated by mortgage debt.
Where did you read that the vast majority of Americans pay their balance every month? I’ve read that a significant percentage of Americans are still paying off 2022 holiday spending, and with student loan pmts resuming, pandemic stimulus drying up, and an increase in “revenge” travel that credit card bills are getting higher and not necessarily paid off. Perhaps the fallout will become evident in 2024 as Sam has suggested.
That was a twitter thread from either Bob or Lyn IIRC. I’ll try to find it back.
Thanks. I still need to read Lyn Alden’s November newsletter. I’m not familiar with Bob Elliott so I’ll look him up.
Here’s a post from February, there might be better data elsewhere: https://twitter.com/BobEUnlimited/status/1624891458925756419
> Card debt “problem” is pretty overstated on macro level. That’s cause about half of folks who use cards fully pay it off. Essentially getting a revolving 50d float and never pay this rate. And that’s in numbers, in dollars likely to be much higher in dollars.
Lyn Alden is great. She’s the only one who could make me think that Bitcoin is a useful asset (her interview with Jack Farley on Forward Guidance was instructive).
Bob looks at all the available data when it comes to wages, inflation, economic activity, etc. I love that attitude.
You had me at the dog in the fire meme :)