Record Debt, Surging GDP, and Falling Incomes: Unraveling the Roller Coaster Economy

By Doug Young – 06 January 2024

Introduction

The current state of the economy is akin to a roller coaster ride, marked by contrasting trends such as a surging GDP, falling real personal income, and skyrocketing levels of debt.

This article delves into the complexities of this economic cycle, examining the factors driving these patterns and shedding light on the potential implications for the future.

Surging GDP Amidst Falling Incomes

The third quarter of 2023 witnessed robust economic growth, with the GDP expanding at an annualized rate of 4.9%. This growth rate was more than double that of the previous quarter, reflecting the resilience of the economy.

However, amidst this surge in GDP, real personal income experienced a decline. This decline accounts for inflation and taxes, raising questions about the sustainability of the current economic model.

Record-Breaking Debt Levels

According to the Federal Reserve Bank of New York, total household debt and credit card debt reached all-time highs in the same quarter that witnessed remarkable GDP growth. In just three months, consumers pushed household debt up by $228 billion, totaling a staggering $17.29 trillion.

Equally concerning is the rise in credit card debt, with consumers accumulating an additional $48 billion in the third quarter alone. Year over year, credit card balances grew by $154 billion, the largest increase since 1999. Experts argue that the accumulation of debt is not incidental to consumer spending but rather the very reason for it.

Signs of Trouble Emerging

Delinquency rates across various debt categories have been on the rise, with the third quarter reporting higher rates in every category except for student loans. Serious delinquencies, defined as debts delinquent for 90 days or longer, experienced a nearly 60% year-over-year increase.

Additionally, retail sales in October fell for the first time in seven months, indicating a potential slowdown in consumer spending. These troubling signs raise concerns about the sustainability of the current economic trajectory.

The Fragile Balance: Debt, Spending, and Economic Future

The dependence on debt to fuel spending poses significant challenges for the economy. While consumer spending is a vital component of GDP, the increasing reliance on credit card debt raises questions about the longevity of this growth model.

Experts warn that consumer ability to continue consuming indiscriminately is reaching its limits. If spending were backed by rising income, a soft landing for the economy might be possible. However, the current dependence on debt suggests that we are operating on borrowed time.

Conclusion

As the roller coaster economy continues its wild ride, it is crucial to closely monitor the record-breaking debt levels, falling incomes, and the potential consequences for future economic stability.

The delicate balance between debt, spending, and sustainable growth warrants a careful examination of economic policies and consumer behaviors. By understanding the intricate dynamics at play, policymakers and individuals alike can make informed decisions that contribute to a more stable and resilient economy in the long run.

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