Credit-card debt is soaring
axios.com
axios.com
So if the price of a gallon of gas averages 200 pennies more for a year, that is $200 billion in consumer spending that goes to gas.
We've had a run rate of $200 to $300 billion (depending on which state, when you start counting from the previous lower price, etc.) being drained from people over the past year. That has to come from somewhere!
$300B sounds like a lot, but it's 2% of consumer spending.
[1]https://www.macrotrends.net/countries/USA/united-states/cons...
The world is waiting to be grabbed by the balls...still. Dump your shitty gig and get a job.
The opportunity cost of "can't change my mind and do something better" is very high these days.
>What's happening: Spending on experiences, like travel and entertainment, has supplanted physical goods like clothing and home items as the purchases of choice for consumers.
>Zoom out: For spendthrift consumers, a saving grace has been rising wages that, while failing to keep pace with surging inflation, are still rising at the fastest pace in decades.
>They’re also bolstered by an unusually strong jobs market that has kept the unemployment rate below 4%, and given job seekers a lot of leverage.
While those who boast about job numbers are indeed oversimplifying, complaining that "average Joe is having a hard time to afford gas and groceries with his still same wage gig job" is just false. It's a meme that people spread on the internet because it aligns with their personal views, not because it's backed by the data.
When my mom started teaching in the late 60s, doctors/lawyers/engineers made only about 20-30% more than elementary school teachers. By the time she retired in the mid-00s, it was about 3x more, and my starting salary as a software engineer was basically equal to her retirement salary. 15 years into my career I was making 10x what she ever did.
Don't forget that teachers generally have a pension plan. They also work for a district, which means changing employers requires relocating or drastically changing ones commute. It's also not viable to jump between "industries" due to that pension. They're fairly locked in and then taken advantage of.
The U.S. isn’t building enough housing. Especially in places people want to live. This is a multi decade problem and almost fully explains the migration to southern cities.
The marginal rise in gas, as the OP claimed, has nothing to do with why credit card rates are soaring. And the OP’s dismissing job numbers is also incorrect, because wages are increasing and that is playing a huge role in offsetting the pandemic/Ukraine war related inflation.
Bogged down all day and can't make ends meet? New plan, you have nothing to lose.
Now, if the statement were more like, "The average person is worse off in spite of wage growth because of inflation," I would wholly agree. But wages have not stayed the same.
Fortunately we have a metric that measures what people actually spend on goods, called inflation, which is under 10%.
Everything goes hyper-bole so quick these days and becomes "true." "Inflation" is a buzz word that is meant to encapsulate outrage at the price increases.
Fed and most economists state this is true inflation that will last. Adding trillions of money for free during the pandemic is extremely unlikely not to add long term inflation.
Here's [1] the IGM poll of leading economists on it from last Nov.
>"Inflation" is a buzz word
Inflation is an economic variable that has a solid definition, and it's very likely the current (non-disputable) inflation will have a long lasting component. For example, as a result of inflation, there is ample evidence wages have risen from pressure, and wages are known historically in economics as "sticky," meaning they are much harder to lower than to raise. This alone would give long lasting inflation (and has done so historically).
Even greater incentive when the authorities tasked with safeguarding financial securities and markets don't know whether they are looking at a recession or it just hit them on the face.
There's been a great deal of public deception over the past 2-3 years on matters gdp, growth and overall market performance. The chicken has to come home to roost eventually.
[0] https://www.marketwatch.com/story/how-companies-are-becoming...
I guess the caravans of hundreds to thousands of destitute boomers are just in it because they like the van life?
- Aristotle, Politics.
Some may be surprised to learn that this is a very old idea. Yet so much of modern life is based upon it in some way. It would be interesting to hear what Aristotle would think about a mortgage or a used car loan.
Anyway, I, and I think most people, would agree with your sentiment here. Generally speaking CC usage when you don’t already have the means or stand to gain nothing from it is a bad idea.
Debt in general has very ugly side-effects and incentives, specially when it is levered, but banning interest altogether would basically destroy modern capitalism.
>It is not too old, but it is also certainly wrong
Even according to Marx money is only supposed to be a medium of exchange, the fact that it bears interest means that money isn't a neutral medium of exchange whatsoever. What interested me most about money is the fact that this problem isn't even new, founders of religions knew about the problem thousands of years ago. If anything this means they know more about money than we do today. The idea that they are wrong can only be justified by the fact that our method of eliminating liquidity preference is superior to theirs, e.g. because we run permanent inflation to erode exponentially growing debts.
>interest a very efficient way to lend capital.
Maybe in a growing economy but interest is only efficient when it is equal to the growth rate. In any other context the optimal interest rate is always zero because any higher than that prevents investments due to artificially high profitability requirements beyond what is available in the real economy.
>Banning interest is banning investment.
The good news is that neutralizing liquidity preference does not require banning it, anyone who has spent time thinking about liquidity preference knows that banning it is pointless. The obvious solution to neutralizing liquidity preference is to just eliminate the lower bound on interest rates. If liquidity preference is 3% and there is a zero lower bound of 0% you get positive interest even if the economy isn't growing which is highly inefficient and leads to artificial scarcity and underemployment or even unemployment if people pile up jobs onto fewer and fewer people. If the interest rate on cash were -3% or even -6% then the lowest possible interest rate would be 0% or -3% after accounting for liquidity preference.
This is just a floor, just because the interest floor is negative doesn't mean the interest savers get on their deposits must be negative, it just means they have to deposit their money in a less liquid form.
>but banning interest altogether would basically destroy modern capitalism.
Eliminating liquidity preference in the way I argued above would effectively result in the end of modern capitalism and would replace it with something better.
Interest existed for 100's of years before the fiat model.
Interest is not paid on money, its paid on time of allocated capital. If you dont have money you can still collect interest in the form of goods - I give you 100 seeds, you return 1000 seeds to me next year. Without interest there is certainly not lending, so the owner has to invest themselves or consume the capital.
It would definitely be better that investment were not issued as debt and were always equity to prevent many ugly side-effects, but thats not a configuration applicable to everything, so this is what you get.
> In any other context the optimal interest rate is always zero because any higher than that prevents investments due to artificially high profitability requirements beyond what is available in the real economy.
This is mixing macro-economics with micro-economics. Even in a contraction economy you have growing businesses, which mean there is demand for capital for production itself. 0% interest rate means there is no demand for capital, which is not true even in North Korea.
Interest is just a price, like any other good in the economy.
Since then I keep a close eye on my credit rating, reviewing it monthly and ensuring what I'm doing is improving it.
I strongly dislike it, but I can't risk limiting my family because I disagree with how people in power think things should work. Until this drops out of fashion, I'm going to ensure my score is excellent.
I had never felt like more of an idiot as I spoke to the mortgage advisor and discovered my money management had completely knee capped my family's ability to buy a home when it was wise to do so. We lost out significantly as a result, and it still burns to think how much easier life would have been if I just sucked it up and played the game all along.
That was stupid, not to mention unfair to my family. Even if you’re more wealthy than average, getting by without any credit at all is extremely impractical.
[1] okay not the best phrasing but you get the idea
>You need to track the credit card balance relative to both your current bank balance and expected earnings, and then evaluate that every time you consider a purchase.
Keeping track of future expected earnings is only necessary if you want to maximize your spending, but if you want to use your credit card like a debit card it suffices to ensure that sum(bank balance) > sum(credit card balance).
But what a charge card does for you is kind of nice though: it converts all the random unpredictable expenses into a single, deferred, interest free lump sum payment. Also: maybe I'm boring but at the monthly level those random expenses smooth out into something more predictable to where I can pencil in average payments every month and be pretty accurate. But when I'm wrong, I have 30 days to figure it out, instead of ... instant pain.
The method you describe can work for people, and it did for me when I started grad school. But I've moved on to more complicated tracking. Now that I make 10x what I did back then, annual budget spreadsheets and double entry accounting is kind of required to optimize the tax bills I get these days.
And of course, the cash back is nice =)
Then again, it mostly comes to not in general spending more than you earn as regular daily activity.
So that's a difference.
I literally had zero credit card companies calling me and telling me to spend more. The most I've gotten are mailers telling me to do balance transfers.