On Sunday, we published a post about the eerie similarities in Nasdaq and S&P 500 price structures between 2008 and today. It was noted in the post that circumstances are slightly different today, but this recent news from MSN tells us a different story:
While the 2008 global financial crisis was predominantly caused by over-levered banks handing out mortgages to borrowers who couldn’t make payments on time, the article above makes the claim that a similar situation is happening with credit card loans today.
As far back as July, we’ve been writing about the dangers of consumer loans going parabolic in conjunction with high mortgage rates, inflation, and stagnant or decreasing wage growth. We keep track of consumer loans here at Breaking Metrics (and The Rebel Economist) on “The Dashboard” but we also keep track of credit card delinquencies. Last quarter, card card delinquencies saw an uptick. Given this news from Goldman Sachs, we should expect another increase on delinquency rates for May through August 2022.
Considering that the Fed and Treasury have already pumped trillions of fiat money into the economy a couple years ago, will they do the same to bail out the banks a second time around and worsen inflation?
The similarities between 2008 and today are becoming increasingly worrying as the price structures on major indices look nearly identical and banks are repeatedly handing out loans to people who can’t pay them back. This scenario further illustrates how growth in the U.S. economy is being propped up by quite literally nothing. The dollar isn’t backed by anything and banks no longer need to keep 10% cash reserves. Consumers aren’t making enough money to keep up with rising costs of goods that aren’t even made in the U.S. and the data shows that.
Wages sharply rose in 2021 because tax payers had to report stimulus checks as income – and now we’re seeing a decline in wage growth reeling off the pandemic while consumer prices continue to increase.
To recap (in layman’s terms):
- Goldman is reporting losses on credit card loans – a quarter of their loans have gone to consumers with FICO scores lower than 660.
- Credit card loans are the highest they’ve ever been and went parabolic after pandemic lockdowns.
- There’s been an uptick in credit card delinquencies between January and April 2022.
- People aren’t making more money – wage growth has been decreasing since April 2021.
- Nasdaq and S&P 500 are showing very similar price structures today as they did in 2008.
I’m not bullish.