Axios News Article – https://www.axios.com/2023/08/07/credit-card-debt-1trillion

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Ben Fraser: Hello, Future Billionaires! Welcome back to another episode of the Invest Like a Billionaire podcast. Today we’re coming to you on another top of mind segment. So these are shorter one hitter segments where we focus on one or two articles that we’ve been reading. And I just wanna be more responsive and just share with you our thought process of how we are noticing different trends in the economy.

And just really trying to give more, boots on the ground, things of what we’re seeing to investors to help inform investment decisions and strategy and all that. And one of the things that’s been floating around these past few weeks and something I just couldn’t, it was bothering me so much we had to come on the podcast and share, this is this kind of announcement that the total consumer credit card debt.

Has just exceeded $1 trillion in the US Whoa. The big 1 trillion. That, that, that’s a scary number. And I agree. It is a very big number, and it’s the biggest that we’ve ever seen in history. It’s the most credit card debt consumers have had in history. And I’m gonna pull up a chart here.

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We focus on macro driven alternative investments, so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. I’m gonna pull up a chart here from our friends at Fred. You wanna tell everyone who Fred is? We love Fred. Thanks. 

Bob Fraser: Thanks. Fred is the Federal Reserve Economic Data.

We love Fred. Fred’s Awesome. 

Ben Fraser: Fred, if you, yeah, you can come up with almost any chart that you wanna see you can find on Fred. And so you can see here, this is total revolving credit and credit cards, consumer loans. So it’s just crossed a trillion dollars. I’ll say that is a lot, right?

That’s a lot of credit card debt. And inevitably all the doomsayers are coming out of the woodwork and now saying, Hey, this is the beginning of the end. This is why we’re about to have a big meltdown. This is why recession is just around the corner. I’ve been saying this for a long time, and then we have to come on here and say, hold on, time out.

If we need to take a step back and look at the data in a more holistic way. One thing I’m gonna throw back to you, Bob here in a sec, but we’ve been looking at, what we call investible mega trends. And a series that you can go watch from the links below of some of the data that we’ve been tracking.

And one of the things we’ve been tracking is the state of the consumer. How is the consumer doing in this current economy? Because so much of G D P is driven by consumer spending, it’s very important to understand the strength or lack thereof of the consumer to know what. How does that look for the economy going forward?

And so one of the things that’s really important to, to look at, and this is more a commentary just on general, headline economic analysis, than anything. So many people see a headline or they react to some, a chart that they see without digging in further, right? And actually looking at what’s the relevance of this data point.

The thing I wanna say is, I’m gonna change my screen here. Can you see the next slide here on my screen? Do you see it there, Bob? Yeah. Okay, perfect. So this is credit card debt as a percent of total deposits. So we just showed you that credit cards exceeded $1 trillion, but this chart now makes it as a percent of total deposits because one of the things that we’ve been saying for the past, really six to nine months.

The consumers, there’s an excess trade savings of roughly $4 trillion. Huge amounts sitting on the consumer’s balance sheet. 

Bob Fraser: This is the most, five times more than history. They’re sitting there checking deposits five times. 

Ben Fraser: And so when you look at a credit card debt, you have to look at that relative to what’s the total deposits sitting on the balance sheet.

And you look here, it’s at 5.8%, which is significantly lower. It’s lower by 50%. Then it was 20 years ago. Even the 

Bob Fraser: one that, can you show the other one that shows credit card debt as a percentage of G D P, yes. Economy. And so there you go. Again, it’s not quite as scary as this. Wait, $1 trillion.

We’re, we’re about to, we’re about to, to crash, here’s the thing, and I’ve actually been predicting for well over a year. That we’re, we are not gonna go into recession or we’re gonna go into soft landing. And that it really was not, we’re not gonna see anything, anything tough happen.

And because the consumer was so flippant, healthy and the, so how do I do that? How do I decide when you see it? Negative data. So I’m always reviewing data. There’s always lots of negative data that says the opposite of what I’m saying, and there’s always data that says pro what I’m saying.

So how do you decide? One of the things that I’ve learned to do over the last 25 years of reviewing economic data is sizing these things. That’s figuring out what is noise and what is real, right? By looking at the size of these things and comparing the data, And and that’s, 

Ben Fraser: I wanna pause you there real quick because this is massive.

This is coming from 20 years of economic research and seeing this trend play out over time because to your point, you can always find someone to agree with your economic perspective, right? There’s always two sides to every coin. There’s always data points to support you or not support you. What you’re saying is you have to look at relevance in, in the size and the scope of what does that data point actually imply, right?

So it’s sizing these up. It’s. It’s a difficult thing to do, but as you, you do this for a long time. Explain that a little bit more because that’s, we’ve talked about this before. This is a huge deal. It’s 

Bob Fraser: sizing here. So even, so credit card debts, having a credit card hit debt and but then how does that, how is that important relative to high consumer savings?

Low, low debt service, a booming job market, strong wealth effect, and record real income. So you put it in context of everything else, right? Which is more important. The way consumers work, your number one thing is your job. If your job is stable and you’re making high earnings, you’re gonna feel really good and you’re gonna spend, right?

So it’s context and sizing. So understand this, okay, so you got a trillion dollars in credit card debt and you’ve got a certain amount of interest. But it’s irrelevant considering the amount of earnings that are happening and the amount of growth in earnings.

So it’s putting everything in context and in context. So you still have, consumer spending is still sitting in records. If anybody’s gone to an airport recently, it’s just insanely high, high consumer savings. So we’ve seen savings drop recently, but it’s still extremely high.

The debt service cost, the amount people are Americans are spending just to pay their debts is very low because they have historical, low interest rates locked in. Very strong job market. It’s finally starting to soften a little bit. I. But the job market is super strong. Do you believe if you lost your job, you could go get a job tomorrow?

Pretty well. Most people do. It’s like the job market is just tighter than a drum strong wealth effect. So people have really ridden up the stock market and the housing price gains to feel wealthy. Record real income. In a real sense, the income has gone up. Okay. The pay wages have gone massively up with this post covid and people are cash.

Yeah. And so yeah. So they got credit card debt, but that’s probably more because people are just feeling good. They’re spending, and so it’s not negative. It’s not, we can’t afford anything, so we’re gonna put it on a credit card. It’s more like we’re feeling good. So again, putting everything in context is really important.

Ben Fraser: Yeah, no I love that. And I think I ought to come out here and just share some updates, because we’ve talked about the consumer for a while and, there are some things, directionally some of the trends are, we’re having increased debt, maybe a little bit lower savings rate.

But if you take a step back and look at just. Snapshot of where they’re at right now. They’re still very positive indicators. And so yeah it’s, 

Bob Fraser: It’s softening, but it’s still strong. We’re not, and it’s so funny ’cause back when I was saying this, I said we’re not gonna have low inflation anytime soon.

The Fed is not gonna stop. I said we’re going to continue to have, they’re not gonna be able to turn off the heat in this economy. Very easily. It’s gonna continue to grow. And that’s exactly everybody’s saying, how strong the data is. Surprising everybody, but it wasn’t surprising to us, 18 months ago when we’re predicting all this.

Ben Fraser: I don’t wanna toot our own horns because that’s never a good show. But, earlier this year we were talking about some of these things and trying to predict where this, where it is, how it plays out. That probabilities of a soft landing were higher than a lot of the mainstream media was reporting.

We actually just saw several banks just in the past few weeks, started to change their tunes of probabilities of recession going way down, actually, a soft landing, becoming a lot more realistic, right? Because of some of these really big factors at play, right? So the 

Bob Fraser: Wild card is the Federal Reserve, they’re, they’ve shown it to start, to continue to increase interest rates in order to bring inflation down to 2%.

I’ve said that inflation at 2% is gonna be very difficult to achieve. So they continue to raise rates. It’s gonna continue to create, to break things in the economy and, and to create problems. So far it’s not happening, but they can continue and they can cause recession, but it’s gonna be very difficult.

And so we’ll see what happens, and, we’re expecting a reset in commercial real estate. And those kinds of things. We’ll see what happens as we move forward. 

Ben Fraser: Yep. And we’ll be sure to report to you as new data points come out that are relevant to investors and.

As always, if you’re enjoying this podcast, we always appreciate your support and by sharing this or leaving a review. And thanks so much for tuning in.