The Great Plastic Come Back

Let me start by saying Streetlight Daily isn’t a personal finance letter. Its mission is to show you what’s really going on in Washington and Wall Street that is influencing, impacting (and even threatening) your investments!

(Our paid letter, Streetlight Confidential, takes that mission three steps further by uncovering investment opportunities that you won’t get anywhere else — the kinds of ground floor opportunities that make venture capitalists so perennially happy.)

That said, there’s another trend that’s been developing — often associated with personal finance — that bodes pretty badly for the economy overall.

Are Your Personal Finances Threatening the Market?

Back in October 2020 AP (Anno Pandemic) the Federal Reserve issued its monthly report on how deep in the hole American consumers were digging themselves. Surprisingly, that month’s Consumer Credit report expanded by only $7.2 billion — less than half the consensus estimate of $15 billion. 

Breaking the numbers down, non-revolving credit — debt used largely to pay for cars and education — hadn’t budged all that much. But revolving credit — debt to pay for the new pair of shoes you can’t afford — “shrank by $5.5BN to $979.6BN, the lowest since May 2017 and the 7th drop in the past 8 months.”

Apparently some germ of mass sanity spread throughout the country during the lockdowns infecting the minds of the American public with the notion that it might be a good idea to cut back on spending and throw some of Uncle Sam’s free money at the bills they already owed.

However, as America emerged from its mass quarantine and life began to get back to some semblance of normal, credit spending started on the uptick.

The end of stimulus checks, expanded unemployment benefits and the eviction moratorium does not bode well for debt management… Its (the NY Fed) Quarterly Report on Household Debt and Credit found that credit-card bills rose by $17 billion in 2021s second quarter, to $790 billion nationally. That was the first uptick after four straight quarters of declines.”

Not Business as Usual

But that resumption in spending came on the heels of what would eventually be admitted as skyrocketing inflation. 

And as payments chased prices, 2021 ended on a stunningly negative note (my emphasis)…

November consumer credit exploded by a whopping $40 billion, double the expected $20 billion print, more than double the $16 billion October number, and the highest on record!

And while non-revolving credit (student and car loans) jumped by a solid, if not necessarily remarkable $20 billion, this was only the 7th biggest increase for the series in record, the real stunner was revolving, or credit card debt, which more than tripled in November, soaring to $19.8 billion from $6.6 billion in October, by far the highest such print on record.

This has pretty far reaching implications for the economy and the markets. I’ll explain in your next letter…

Make the trend your friend,

Bob Byrne
Editor, Streetlight Daily