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Please see the below article from EPIC Investment Partners discussing the current situation with US Household Debt. Received this afternoon 09/02/2024.

Credit card debt among American households has climbed to record highs, topping USD1.13tn in Q4 2023, according to new data from the Federal Reserve Bank of New York. This USD50bn increase reflects financial struggles, particularly for younger and lower-income consumers, as inflation and interest rate hikes drive up the cost of credit card balances. Nearly half of cardholders now carry debt month-to-month, compared to 39% in 2021 and 47% in July 2023.

At the same time, delinquencies on credit card payments have jumped over 50% in the past year. About 6.4% of credit card accounts are 90 days overdue, versus just 4.0% at the end of 2022. This signals that many consumers are finding it difficult to keep up with minimum payments as debt compounds. Mortgages and auto loans have also grown significantly. Overall household debt now sits at a record USD17.5tn (up USD212bn in Q4 2023).

While higher-income households with investments have largely weathered inflation, lower- and middle-income groups, especially renters, have been hit hard. These consumers tend to carry more credit card and other non-mortgage debt, without assets to help offset rising prices. As interest costs climb, their financial stress has forced delinquency rates upwards. Tighter budgets have left little room for savings among much of mainstream America.

The ballooning credit card debt and delinquency rates cited in this report foreshadow trouble for the broader US economy. As the Federal Reserve maintains its higher-for-longer rates to fight inflation, it risks tipping many households into default or bankruptcy. Combine this with potential housing market declines and additional inflationary pressures, and the report paints an ominous picture of some foundational weaknesses in the US economic landscape. Unless these consumer debt and inflation trends reverse, they could spiral into even greater problems for economic growth and stability going forward. The report suggests the US recovery remains highly uneven and vulnerable to shocks that could disproportionately impact poorer Americans who are already barely staying afloat.

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Alex Clare