Published at Theya. Follow Joe on X.
Theya is the world's simplest Bitcoin self-custody solution. With our modular multi-sig vaults, you decide how to hold your keys.
Whether you want all your keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple iPhones, it's Your Keys, Your Bitcoin.
Download Theya on the App Store.
the cliff-notes:
- the price of orange juice is up 4.5x since 2015
- pandemic-era excess savings are gone, consumers are tapped of their cash
- consumer credit is rising 6x faster than its historical pace
The story of the 2020s so far has been accelerated debt growth at the public and private level. We're talking private today. Red-hot consumer price growth for 3 years has driven an unprecedented increase in the volume of credit card balances.
The food-at-home bucket of the CPI tracks:
- Cereals and Bakery Products: Bread, cereals, rice, flour, and prepared mixes.
- Meats, Poultry, Fish, and Eggs: Beef, pork, poultry, fish, and eggs.
- Dairy and Related Products: Milk, cheese, butter, yogurt, and other dairy products.
- Fruits and Vegetables: Fresh fruits, fresh vegetables, canned and frozen fruits and vegetables, and fruit juices.
- Nonalcoholic Beverages and Beverage Materials: Coffee, tea, carbonated drinks, fruit drinks, and other nonalcoholic beverages.
- Other Food at Home: Sugar, sweets, fats and oils, snacks, condiments, spices, baby food, and other miscellaneous food items.
Broadly, this part of the index tracks prices at the grocery store. It has risen 21.2% since Joe Biden took office in 2021. Grocery prices for essential items are up much more than the broad basket suggests. Due to the weighting of the basket, it's generally considered inaccurate for what you actually wind up putting in your cart and taking to the checkout. The consensus, non-BLS view, is that prices at the grocery stores are up anywhere from 1.5x to 2x over the last 3-year period, and that's a conservative estimate.
Take orange juice, as an extreme example. It has risen 339%, or close to 4.5x, in the three years since the sitting President took office. For a necessity in most people's shopping carts to have risen this much is highly abnormal, and it has squeezed consumers (pun intended) of what little excess cash they may have saved aside from their regular salary in order to keep the same items in their cart.
Note how OJ revolves around $100/contract, going as high as $200 during periods of volatility. $445 per contract means that not only are OJ prices at several standard deviations above the mean, but they're expected to rise even more:
People have dipped into their excess savings to make it all work, but they're now tapped out. Post-pandemic excess savings, measured by the San Francisco Fed, includes cash from stimulus and other excess cash stowed away following the pandemic during the 1.5-year reprieve period of low interest rates.
The consumer excess cash pile has shrunk from $2.1 trillion to -$72 billion. People are not only tapped out, but they're dipping into savings they didn't plan on spending to keep it all together:
How are people making up the difference, other than tapping their savings accounts? Taking on more credit card debt.
People are taking on new credit card debt at double the pace as pre-COVID. The average monthly increase in revolving consumer debt over the preceding two decades was ~$4 billion/month, excluding recessions where it contracted. Now, it is going up by roughly $8.5 billion/month on average.
People certainly aren't doubling the amount of credit card debt to take advantage of lower interest rates or good teaser rates. Rates are double and teaser rates are few and far between compared to 2020 and 2021. They are doing this out of necessity. Downsize your lifestyle or borrow from tomorrow. Plenty of people are choosing the second option:
Here's another view: total US credit card balances since 1980. Let's compare the same period from the last chart, from the early 2000s up through 2020, and then the current regime from late 2020 until today.
It took 18 years for US credit card balances to rise by $367 billion. For the next $367 billion? We got there in 3 years. That is a sixfold acceleration in the pace of public sector revolving debt growth. Granted, this chart lumps together all cohorts of borrowers and lacks the stratification needed to see who is really hurting the most. We can still glean that people are taking on more debt not because they're leveraging low rates, but in order to afford their way of life as it was prior to the 2020 and 2021 monetary and fiscal bazooka. Buy-now-pay-later is increasingly the bedrock of US economic activity, and with it comes fragility:
This raises serious concerns about delinquency given the level of interest rates. Lo and behold, serious delinquencies are rising. Here's the breakdown by age cohort:
- 18-29 are at 9.9% serious delinquency
- 30-39 are at 9.47% serious delinquency
- 40-49 are at 6.96% serious delinquency
- 50-59 are at 6.01% serious delinquency
- 60-69 are at 4.78% serious delinquency
- 70+ are at 5.53% serious delinquency
Credit card balances transitioning into serious delinquency, payments late 90 days or more, have risen higher than their peak during late 2019, at the height of the last credit cycle. Also, they are at their highest level since the tail end of the Great Financial Crisis.
An increasing percentage of people with outstanding credit card balances are very late on their payments, and a great deal of them plan on entering default and not paying it all back. This means plenty of balance sheet impairment is on the horizon for the banks who lent to these borrowers entering default, a commensurate pullback in lending, and a slowdown in aggregate spending across the US economy. We're not there yet, but that's on the horizon:
Final thought: credit cycles resolve in deleveraging. Chances are, it'll be an inflationary deleveraging for the public sector and a deflationary one for you and me.
Take it easy,
Joe Consorti
Theya is the world's simplest Bitcoin self-custody solution. With our modular multi-sig vaults, you decide how to hold your keys.
Whether you want all your keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple iPhones, it's Your Keys, Your Bitcoin.
