U.S. household finance seems to be in terrible shape with flat incomes all around, rising costs, and exploding credit card debt. The problem is compounded by the weirdness of it all. If one wants to put a moral theme to it all, it would be “Live for today, for tomorrow we could die.”
Rising rates for credit card debt should drive down the propensity to carry balances from one month to the next. The opposite is happening. This is likely a measure of just how terrible things have gotten.
![(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)](/_next/image?url=https%3A%2F%2Fimg.theepochtimes.com%2Fassets%2Fuploads%2F2023%2F08%2F09%2Fid5454373-JAT_2023.08.09_1-1200x885.png&w=1200&q=75)
No question that banks are making a killing with this new trend. But from the point of view of the debt holders, it’s a very bad deal. A 21-plus percent interest rate is really a disaster. No one would do this voluntarily. It must be happening by necessity. And keep in mind that 3 in 4 card holders carry debt month-to-month. The average household now holds more than $10,000 in credit card debt.
At the very same time, even with vastly higher rates of interest, personal savings rates are falling again, less than zero in real terms but 4.3 percent in nominal terms. This is happening even as real disposable income is completely stagnant, resting now at the same level we were at before the lockdowns.
As for the stimulus payments, I do hope that everyone now knows that was a huge fake. You would never have been made more well off from them unless you were an insider. The payments were nothing but a bribe to stay quiet and accept your fate.
![(Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker)](/_next/image?url=https%3A%2F%2Fimg.theepochtimes.com%2Fassets%2Fuploads%2F2023%2F08%2F09%2Fid5454374-JAT_2023.08.09_2-1200x885.png&w=1200&q=75)
This whole problem—stagnant income, falling savings, rising rates, and sky-high credit card debt that charges 20-plus percent—is a form of captivity. Carrying a large debt removes your options in life, forcing you into a position of living off the constant stream of income. This can profoundly affect the decisions you make.
Imagine if when the vaccine mandates came along—for a shot that no healthy working person actually needed—there would have been mass quitting as opposed to mass compliance. The entire racket would have come to an end and very suddenly. The entire campaign for segregation and then booster after booster would have flopped early on. Millions of injuries would have been prevented.
Also being free of the attachment to a constant flow of income to service debts would have allowed people to speak out boldly against the fundamental attack on basic rights and liberties. If millions of people had done this, the entire coup against freedom might have been prevented. It was careerism and debt obligations that played a huge role in keeping people quiet and compliant. They simply couldn’t refuse to obey because their financial position and professional dependencies required it.
This is precisely how the ruling class wants us: living without options.
It stands to reason that free people should stay out of debt as much as possible and accept it only when it makes sense. That’s true even during an inflation that in theory would allow you to pay off your debt with cheaper dollars in the future. That tradeoff truly isn’t worth it.
My father was there in the earliest days of credit cards. They grew out of a culture of trust. You go to the department store and take what you want, and they send a bill. To keep up with who’s trustworthy, the stores started offering cards. It was a status symbol, something deployed by people who didn’t need “layaway.” It was only for those who had the means to enjoy the convenience.
This was a great system, and the banks figured it out in the late 1950s and started offering cards themselves and carrying the debt. One of my father’s earliest jobs was calling people to ding them to pay their debts. He told me that a surprising number of people didn’t think of them as debts but as a magic ticket to a better life. My father’s job was to remind people that there’s no free lunch.
By the time I got to college, the whole thing had become utterly crazy. I can recall going to the campus bookstore on the first week of classes and seeing a line of a dozen sales reps for banks who were handing out credit card applications. Everyone who filled one out got a thousand or two in credit. My classmates filled up their credit cards in the first semester and spent the rest of their time in school digging their way out of that morass.
The banks loved it! They roped in millions of customers who coughed up all discretionary funds as interest from stupid young students with no financial knowledge or experience.
The system has come to an end, and thank goodness. It’s far more common today that young people learn to live with only debit cards, truly a great innovation for personal finance. If you want a credit card, banks today put the responsibility on the account holder to demonstrate his creditworthiness. That’s one of the few good changes I’ve seen in my adult life.
Still, credit cards are everywhere and abused by many at the expense of their own personal well-being. The trillion dollars in credit card debt is a sign of this. It isn’t good. Everyone reading this column should strive to pay off a card every single month (businesses are another matter). If that isn’t happening, something is going wrong. If you take nothing else from this article, please take that.
Another problem is that monthly revolving payments can introduce a grave confusion over what’s a flowing source of income and what’s a permanent nest egg. I’ve had adult friends of mine lose a job and not understand until too late what this could mean for their personal financial position. They had come to believe that the income flow was a stock but, after 30 to 60 days, fly into panic that the candle was burning down to the bottom. In another 30 days, they would be on the street, defaulting and then begging. What such a prospect does to the human mind is ghastly to consider.
Such a disaster is made much less likely without debt. How far should we take this principle? Car loans? I would say absolutely never. Never buy a car that you can’t afford with cash. Sorry if that means not driving the most fashionable machine that the dealer tries to get you to buy. It’s better to get a car that simply gets you from here to there reliably, even if it isn’t impressive to your social circle.
Homes and mortgages? I’m personally not into this, but I get why people do it. If you think your future earnings are so secure that you can take out a 30-year loan, fine. But please understand what this means. Over that period of time, you’re paying double and a half the flow of income over the sticker price. Someone is making money, and it isn’t you. You’re rolling the dice on higher valuations in a highly distorted market.
The greater problem concerns the culture that debt produces, particularly when the government becomes the greatest practitioner of fancy finance. It sends a message that nothing is real, everything is free, there are no limits, money is fake, and someone else will pay. This is how the government does things. Citizens can copy this behavior and do the same, to their own detriment.
Large amounts of consumer debt are these days for people who have no hope in the future. Savings are for people who have dreams or are simply realistic and want to prepare. You should be the latter.
