Global Economics

Inflation is in the Rear-View Mirror

43 percent of credit card holders carry a balance. Delinquencies are rising. It's a deflationary debt trap.

Revolving Credit Hits New Record High

In December, revolving debt has topped the previous high-water mark of $1.021 trillion set in April of 2008. Debt as of December 2017 (the latest available) is $1.028 trillion.

Relationship Killer

In addition to student loans, credit card debt is another factor holding down home ownership and family formation. Studies show Credit Card Debt is a Relationship Killer.

Overdue Debt Hits 7-Year High

The Financial Times reports Overdue US Credit Card Debt Hits 7-Year High.

Distressed debt, defined as debt that's at least three month's delinquent, totals $11.9 billion. That's an 11.5% fourth-quarter surge.

​The Financial Times also notes "More Americans are also falling behind on their mortgages, for which problematic debt levels rose 5.2 percent over the same period to $56.7 billion."

Deflationary Debt Trap Setup

These numbers are huge deflationary. When credit expands there is inflation. When credit contracts (think defaults, bankruptcies, mortgage walk-away events), debt deflation occurs.

Here's my definition of inflation: An increase in money supply and credit, with credit marked to market.

Deflation is the opposite: A decrease in money supply and credit, with credit marked to market.

Looking Ahead

In a fiat credit-based global setup, this is how the real world works.

Rear-View Mirror Thinking

Those looking for a huge inflation boost fail to understand credit dynamics.

Austrians who only look at money supply keep expecting pent-up inflation. The Monetarists at the Fed (central banks in general), are clueless about the situation they fueled.

Perhaps we get consumer inflation for a quarter or two, but inflation is in the rear view mirror, primarily having impacted asset prices, not consumer prices.

Rising interest rates are already starting to impact the housing market.

The auto market, home supply markets, and consumer credit in general got a temporary housing boost.

What's next won't be pretty, and almost no one sees it coming. They can't. Inflation is in the rear-view mirror.

What economists expect to happen, already has. They don't see it because they do not understand what inflation really is.

Weakening Economy

The economy is weakening and the Fed, fearing inflation is hiking right into it.

  1. Pending Home Sales: Pending Sales Unexpectedly Dive to Lowest Level in 3.5 Years.
  2. GDP Forecasts Dive: GDPNow "Real Final Sales" Forecast Dips to 1.6%
  3. Durable Goods: New Durable Goods Orders Dive 3.7%
  4. New Home Sales Down 7.8%: Six Reasons Sales Can't Break Out
  5. Trade War Setup: Huge Mistake Coming Up - Trump Set to Promote Trade Hawk Peter Navarro

Moreover, real median wages have fallen in seven of the last eleven years!

This helps explain the falling savings rate. It certainly does not support consumption.

For discussion, please see How the Fed's Inflation Policies Crucify Workers in Pictures.

Debt Deflation Coming Up

I expect another round of asset-based deflation with consumer prices and US treasury yields to follow.

Mike "Mish" Shedlock

40 Responses

  • shamrock

    Feb 28, 2018

    Severely delinquent revolving debt is 1% of the total. That's considered high?

  • maynardGkeynes

    Feb 28, 2018

    Credit card debt is not the debt that I worry about.

  • Long VIX

    Feb 28, 2018

    ;TLDR credit card debt with intoductory 0% APR should be excluded from that chart in case it isn't already. There are a lot of credit cards with 0% introductory APR for 18 months. There are also FDIC insured High Yield savings accounts that yield 1.5% or hort term USGT that yield 2%. Now, it does not make sense for me to pay my credit card bills early in full when I have such debt arbitrage oppurtunity, does it? If I wanted, I could pay off all the credit cards in full, but it just does not make sense.

  • AWC

    Feb 28, 2018

    And add anywhere from 3% to 5% cash back on some credit cards and you have a good strategy there ;-)

  • AWC

    Feb 28, 2018

    "What's next won't be pretty, and almost no one sees it coming." What's next, Stealth QE? Or will the Fed really give up, admit it's folly and ride off into the sunset? Fat chance.

  • Bam_Man

    Feb 28, 2018

    Yes, we are definitely at the end of this credit/economic cycle, but don't expect the Fed to stop tightening until we are already at least SIX MONTHS into the oncoming recession. It will take them that long to get far enough above the "zero bound" so that they can begin cutting rates again, without crashing the stock market and having to contemplate NEGATIVE rates at the bottom of the cycle.

  • Bam_Man

    Feb 28, 2018

    Which hole of yours did you pull that ridiculous number out of?

  • DBG8489

    Feb 28, 2018

    One of the best explanations of the problem I've seen! And your definitions are spot on as well.

  • Mike Mish Shedlock

    Feb 28, 2018

    It's the direction that matters, not the level

  • Mike Mish Shedlock

    Feb 28, 2018

    They are not delinquent if you owe no payment

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