Can Mounting Personal Debt and Economic Recovery Coexist?

Drowning in debtThe saying “The proof is in the pudding.” applies to proving if America is in an economic recovery…or not. My view all along has been that there’s no way America could be in a recovery phase due structural mechanics of how central banks issue currency into existence, especially given the post-meltdown extravagant dump into the system of newly-printed money via Quantitative Easing (QE). This Wizard-of-Oz official monetary strategy, I believe, has led most Americans merrily down the yellow brick road.

Reality? According to a recent study released June 8, 2016 by CEO Odysseas Papadimitriou, personal credit-card debt for 2016 is expected to surpass that of the years leading up to the Great Recession of 2008. Here are some of their additional findings.

“We paid off $26.8 billion in credit card debt during the first three months of 2016, which isn’t as good as you might think, considering that it’s the smallest first-quarter paydown since 2008 and nearly 25% below the post-recession average.

“This first-quarter pay down covers just 38% of the $71 billion we added to our tab in 2015.

“With 8 of the last 10 quarters reflecting year-over-year regression in consumer performance, evidence is mounting to support the notion that credit card users are reverting to pre-downturn bad habits.

“The first quarter of 2016 shares a lot of similarities with Q1 2007, including the pay-down amount, its size in relation to the previous quarter’s build-up and the charge-off rate at the time. That is not good news for consumers, considering the financial turmoil that followed the last time around.”

CardHub’s projection for 2016 is that, for the first time ever, Americans will collectively hold about $1 trillion dollars in outstanding credit-card balances. Breaking it down, that’s approximately $8500 per household, almost exactly what it was in the last quarter of 2007 ($8463 according to the Federal Reserve), just prior to when the bottom fell out of the economy.

Does a growing personal-debt bubble mean we are headed for another crash?

Logic would tell us that economic recovery and increased personal debt cannot exist at the same time, in the same space. If there really was a recovery, wouldn’t households have enough money to at least pay down debt and not grow it? So if you’re seeing what I’m seeing, you also get the blatant contradiction between an official pronouncement of recovery and the hard evidence of increasing personal debt.

The only winners here are the credit card companies raking in an average of 15% interest on money borrowed. The solution for the people, as I see it, is to accept the fact of a downward spiral in the macro economy (due particularly to the failure of incomes in keeping up with the cost-of-living), and learn how to succeed anyway.

Go with the flow.

How to earn, spend, save and invest today requires rethinking due to money’s systemic loss of value. My research tells me that the everyday person cannot depend on a for-profit financial services industry to have their best interest at heart. Though creative ways to protect you and your family from the ravages of enslaving debt exist, most financial planners probably won’t tell you about them because the training and education they receive is a direct reflection of their link to the banking industry.

I believe we are on our own in regards to truthfully assessing economic reality, and need to increase our financial IQ in order to consider and apply creative financial strategies capable of establishing long-term financial stability. That is, instead of blindly trusting all of what the financial “experts” encourage us to do.

One Response to “Can Mounting Personal Debt and Economic Recovery Coexist?”

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  1. Robert says:

    “Economic recovery.” It’s got a positive ring, doesn’t it? It’s about “us,” and the assessment that “we” are doing better. Numbers are reported below such headlines.

    Ahh. I can go back to sleep now because they have proven that “we” are doing better. I cannot be so selfish as to think that my puny situation is reflective of the truth. My situation is the result of my own stupidity. I have always known that. But “we” are doing better. They told me it was close there for a while and “we” tightened our belts and clearly something worked because now “we” are recovering.

    Silly me to think otherwise.

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