Consumer Credit Card Debt Surpasses $1 Trillion! Why We're Not Concerned | Top of Mind Series

Hello, future billionaires. Welcome back to another episode of the Invest Like a Billionaire podcast. Today we're coming to you on another top of mind segment. So these are shorter kind of, you know, one-hitter segments where we kind of focus on one or two articles that we've been reading and just want to be more responsive and just share with you kind of our thought process of how we are noticing different trends in the economy. And just really trying to give more, you know, you know, boots on the ground things of what we're seeing to investors to help inform investment decisions and strategy and all that. And one of the things that's been floating around this past few weeks and something I just— I couldn't, you know, it was bothering me so much. We had to come on the podcast and share this is this kind of announcement that the total consumer credit card debt has just exceeded $1 trillion in the US.

Whoa.

The big one, Trilly. That, that's a scary number. And I agree, it is a very big number. And it's the, it's the biggest that we've ever seen in history. It's the most credit card debt consumers have had in history. And I'm going to pull up a chart here.

This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned. We focus on macro-driven alternative investments so your portfolio is best positioned for this economic environment. Get started and download your free economic report today.

And I'm going to pull up a chart here from our friends at Fred. You want to tell everyone who Fred is? We love—

Thanks, Fred is the Federal Reserve Economic Data. We love Fred. Fred's awesome.

Fred, you— yeah, you can come up with almost any chart that you want to see, you can find on Fred. And so you can see here, this is, um, you know, total revolving, uh, credit credit and credit cards, consumer loans. So it's just crossed $1 trillion. I mean, I will say that is a lot, right? That's a lot of credit card debt. And inevitably all the doomsdayers are coming out of the woodwork and now saying, hey, this is the beginning of the end. This is why we're about to have a big meltdown. This is why recession is just around the corner. I've been saying this for a long time. And then we have to come on here and say, hold on, timeout. We need to take a step back and look at the data in a more holistic way. And one thing I'm going to throw it back to you, Bob, here in a sec, but we've been looking at, you know, what we call Investable Megatrends and, you know, series that you can go watch on the links below of some of the data that we've been tracking. And one of the things we've been tracking is the state of the consumer. How is the consumer doing in this current economy, because so much of GDP is driven by consumer spending. So it's very important to understand the strength or lack thereof of the consumer to know what, you know, how does that look for the economy going forward. And so one of the things that's really important to look at, and this is more of a commentary just on general, you know, headline economic analysis, you know, than anything. So many people see a headline or they react to a chart that they see without the digging in further, right, and actually looking at what's the relevance of this data point. The thing I want to say— I'm going to change my screen here. Can you see the next slide here on my screen? Do you see it there, Bob? Yeah. Okay, perfect. So this is credit card debt as a percent of total deposits. So we just showed you that credit cards exceeded $1 trillion, but this chart now makes it as a percent of total deposits. Because one of the things that we've been saying for the past really 6 to 9 months is the consumers. There's an excess savings of roughly $4 trillion. Huge, huge amount sitting on consumers' balance sheet. This is the most—

5 times more than history. They're sitting in there in checking deposits 5 times.

And so when you look at credit card debt, you have to look at that relative to what's the total deposits sitting on the balance sheet. And you look here, it's at 5.8%, which is significantly lower. It's lower by 50% than it was 20 years ago.

Even the one that, you know, can you show the other one that shows credit card debt as a percentage of GDP, you know, economy? And so there you go again, it's not quite as scary as this, wait, $1 trillion, we're, we're, you know, we're about to, we're about to, to, to crash, you know, right? So, you know, here, here's the thing, and, you know, I I've actually been predicting for well over a year that we're, we are not going to go into recession or we're going to go into soft landing, and that it really was not— we're not going to see anything, anything, uh, tough happening because the consumer was so flipping healthy. And, and the, you know, so how do I do that? How do I decide when you see negative data? I mean, so I'm always reviewing data. Well, there's always lots of negative data that says the opposite of what I'm saying. And there's always data that says pro what I'm saying. So how do you decide? Well, one of the things that I've, I've, you know, learned to do over the last, you know, 25 years of reviewing economic data is sizing these things, is figuring out what is noise and what is real, right? By looking at the size of these things and comparing the data And, and so, you know, that's what I want to pause you there real quick, because this is, this is massive.

I mean, this is coming from 20 years of economic research and, and seeing this trend play over time. Because to your point, you can always find someone to agree with your economic perspective, right? There's always two sides to every coin and there's always data points to support you or not support you. What you're saying is you have to look at relevance in the size and the scope of what does that data point actually imply, right? So it's sizing these up. It's a difficult thing to do, but as you've done this for a long time, explain that a little bit more because that's— we've talked about this before. This is a huge, huge deal.

It's sizing here. So even so, credit card debt, you know, having a credit card hit debt. And but then how does that— how is that important relative to high consumer savings, low, low debt service, a booming job market, strong wealth effect, and record real income. So you put it in context of everything else, right? Which is more important? Well, you know, the way consumers work, your number one thing is your job. If your job is, is stable and you're making high, high earnings, you're going to feel really good and you're going to spend, right? So it's, so it's context and sizing. So understand this. You know, okay, so you got $1 trillion in credit card debt and you got a certain amount of interest, but it's irrelevant considering the amount of earnings that are happening and the amount of growth in earnings. So it's putting everything in context and, and, you know, in context. So you still have consumer spending is still setting records. If anybody has gone to an airport recently, you know, I mean, it's just insane high, you know, high consumer savings. So we've seen savings drop recently, but it's still extremely high. The debt service cost, the amount people are— Americans are spending just to pay their debts is very low because they have historical low interest rates locked in. Very strong job market. It's finally starting to soften a little bit, but it's— the job market is super strong. I mean, do you believe if you lost your job, you could go get a job tomorrow? Pretty well. Most people do. You know, it's like the job market is just tighter than a drum. Strong wealth effect. So people have really ridden up the stock market and the housing price gains to feel wealthy. Um, record real income, um, in terms of real sense, the income has gone up, okay? The pay, wages has gone massively up with this post-COVID, and people are safe for cash. And so, so yeah, so they got credit card debt, but that's probably more, uh, more, uh, because people are just feeling good. You know, they're, they're, they're spending. And so it's not negative. It's not we can't afford anything, so we're going to put it on credit card. It's more like we're feeling good. So again, putting everything in context is really important.

Yeah, no, I love that. And I think one way to come out of here and just share some updates, we've talked about the consumer for a while and, you know, there are, there are some, some things, you know, directionally some of the trends are, you know, we're having increased debt, maybe a little bit lower savings rate. But if you take a step back and look at just snapshot of where they're at right now, there's still, you know, very, very positive indicators. And so, yeah, it's, it's, it's softening, but it's still strong.

You know, we're not— and it's so funny because, you know, back when I was saying this, I said we're not going to have low inflation anytime soon. The Fed is not going to stop. I said we're, we're going to continue to have, you know, they're not going to be able to turn off the heat in this economy. Very easily. It's going to continue to grow. And that's exactly— everybody's saying how strong the data is, surprising everybody. But it wasn't surprising us, you know, 18 months ago when we were predicting all this.

So I— and I don't want to toot our own horns because that's never a good, good show. But, you know, earlier this year we were talking about with some of these things and trying to predict out where does this— where does it— how does this play out, right? That probabilities of a soft landing were higher than a lot of the mainstream media was reporting. We actually just seen several banks just in the past few weeks start to change their tune of probabilities of recession going way down. Actually, you know, a soft landing becoming a lot more realistic, right, because of some of these really, really big factors at play.

So the wild card is, is the Federal Reserve. You know, they're— they've shown it to start to continue to increase interest rates in order to bring inflation down to 2%. I've said that inflation at 2% is going to be very, very difficult to achieve. So they continue to raise rates. What's going to continue to create, to break things in the economy and, you know, and to create problems. So far it's, it's not, not happening, but they can continue and they can cause recession. But it's going to be very, very difficult. And, and so we'll, we'll see what happens. You know, I mean, you know, we're expecting a reset in commercial real estate, you know, and, you know, in those kind of things. So we'll, we'll see what happens. As we move forward.

Yeah. And we'll be sure to report to you as new data points come out that are relevant to investors. And as always, if you're enjoying this podcast, we always appreciate your support. And, you know, by sharing this or leaving a review. And thanks so much for tuning in.