Hello everyone, in today’s post I want to discuss the continued growth of credit card debt in America. More specifically, I’m going to discuss the state of credit card debt and how this could hurt the price of Silver in the short run.
In 2023 in the second quarter American credit card debt passed 1 trillion. By the end of 2023, we already added 100 billion and in February 2024, American credit card debt is at 1.13 trillion. These are truly staggering numbers and the obvious takeaway here is that Americans are continuing to spend much more money than they have (What happens when a Bank fails- read here).
To make matters worse, the situation doesn’t seem like it’s going to be improving. This is for several reasons. First, since 2023, the average annual percentage rates have gone up 30%. This is terrible news for people that have credit card balances as more of their money is going toward interest. Also, it doesn’t seem like after a hot CPI report (Read About Flaws in The CPI Statistic here) for January, that the Fed could potentially lower rates, which might lower APRs some.
Credit card balances are higher than ever for the average consumer (Read why 40-year mortgages could become the norm here). According to Lending Tree, the average credit card debt for consumers as of the 4th quarter of 2023 is $6,864.
At this point, it appears that credit card debt is beginning to spiral out of control like our national debt (Ways the US Can reduce Spending- read here). It could be very early in the cycle, but there are several implications of this happening.
The first, in my opinion, is that this will kill consumer spending and without question take us into a recession, or perhaps something worse. Consumer spending accounts for around 70% of GDP and if consumer spending truly drops, then GDP will follow as well.
That said, the big question is what could drive this or be the catalyst to occur?
There are a few different things:
- Continued increase in delinquencies and defaults. If these don’t turnaround, banks will tighten lending standards for credit cards even more. This feels strange saying this, since the banks spend so much money marketing and selling credit cards because they can be such a money maker. However, more defaults will cause the banks to raise APRs across the board and hence higher balances, and this of course will kill consumer spending.
- One other thing would be a Central bank digital currency (Read about disadvantages of CBDCs here). The government might come out with a program that lends to people. This could cause many people to walk away from credit card balances and their banks and just use the government. It’s probably a few years out but could happen.
I want to shift gears and talk about how these astronomical debts could affect the silver and gold market. I believe this could hurt the price of silver in the short run. And the logic is pretty simple here. If this credit card bubble busts, it’s going to kill demand for silver in the economy. Silver is heavily used in industry and any sort of recession or worse we can expect silver demand to decrease. Still, notice I say the short term, in the long run, I’m still bullish on silver and other precious metals (Rules for Beginner Silver Stackers).
