Disclaimer: The information presented in this news article is for informational purposes only and should not be considered as financial or investment advice. Readers are advised to consult with a professional advisor before making any financial decisions.

By Doug Young – 13 January 2025

debt crisis

Introduction

The start of a new year doesn’t always guarantee a fresh economic start. Concerning signs are emerging that challenge the optimistic narrative surrounding America’s economy.

It’s time to delve deeper into the numbers and assess whether the United States is approaching a full-blown debt crisis.

Rising Delinquencies and Record-High Debts

Credit card lenders wrote off $46 billion in seriously delinquent loans over the first nine months of 2024, marking a staggering 50% year-over-year increase. This amount is the highest since the financial crisis in 2010.

Simultaneously, the New York Fed reported that Americans’ credit card debt hit a record $1.17 trillion in Q3 2024, rising by 8% from Q3 2023.

Total household debt also reached $17.94 trillion in the same period, a 27% increase compared to the end of 2019, just before the health crisis.

Alarming Trends in America’s Financial Foundation

Disturbing trends in key sectors of the economy raise concerns about the stability of America’s financial foundation.

Subprime credit card delinquencies have reached their highest levels since 2010.

Commercial office loan delinquencies have surpassed the peak seen in 2012, and multifamily property loan delinquencies have doubled within just 18 months, reflecting the pace of the 2009 recession.

Lack of Attention and Optimistic Outlook

Despite these red flags, the media often downplays the severity of debt-related issues, portraying them as inconsequential.

However, even the Federal Reserve has expressed reservations about the optimistic outlook. The aggregate debt-to-income ratios, while useful at a macro level, fail to capture the disparity in debt distribution among households.

The reality is that not every American is benefitting equally from the supposed economic prosperity.

Financial Struggles for Many Households

While high-income households manage to weather the storm, the bottom third of American consumers find themselves in dire straits. Many are already tapped out, with their savings rate currently at zero.

Rising debt and climbing delinquencies, reminiscent of the financial crisis, paint a bleak picture for these struggling households. Moody’s Analytics confirms that income growth outpacing debt growth does not necessarily translate to improved financial situations for all Americans.

Potential Consequences and Wake-Up Call

The Kobeissi Letter has sounded the alarm, stating that America is in the midst of a debt crisis. The precise outcome of this crisis remains uncertain, but investors are growing increasingly concerned.

The year 2025, rather than being a fresh start, could serve as a wake-up call for America’s economic landscape. It is imperative that these warning signs are heeded, and proactive measures are taken to address the mounting debt crisis.

Conclusion

As numbers continue to paint a concerning picture, it becomes evident that America’s economy may be teetering on the edge of a full-blown debt crisis. The rising delinquencies, record-high debts, and alarming trends in various sectors highlight the urgency for a closer examination of the situation.

It is crucial that policymakers, financial institutions, and individuals acknowledge the gravity of the situation and take appropriate actions to prevent a potential economic catastrophe.

Disclaimer: The information presented in this news article is for informational purposes only and should not be considered as financial or investment advice. Readers are advised to consult with a professional advisor before making any financial decisions.

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