A “Precondition” for Deflation is Being Met
Robert Prechter’s Last Chance to Conquer the Crash says:
Deflation requires a precondition: a major societal buildup in the extension of credit and the simultaneous assumption of debt.
With that in mind, look at this Nov. 15 Bloomberg headline:
US Household Debt Jumps Most Since 2008 …
Specifically, households added $351 billion in debt in Q3 and this brings the total to $16.5 trillion, according to the Fed.
Don’t be surprised if delinquencies rise fast as the economy contracts.
The Elliott Wave Financial Forecast warned about this back in April 2019 – even before interest rates jumped.
In February [2019], EWFF described record-high U.S. household debt as a “pernicious” threat that will eventually wreak havoc with the U.S. economic order. Many of these borrowers are already coming up short. According to Bloomberg, U.S. student loan delinquencies hit a record high of $166 billion in the fourth quarter of 2018. The story is the same for auto loans. The Federal Reserve stated on February 12 [2019] that a record 7 million Americans were 90 days or more behind on auto loan payments. … Delinquency rates as a percentage of total outstanding balances are also significant. Student loan delinquency rates are at the high end of their range and much higher than during the last credit crisis. Auto loan delinquencies are approaching their former highs of 2009, despite a supposedly hot U.S. economy. The total amount of credit-card debt is said to be more contained, but it rose to a new record high of $870 billion in the fourth quarter, surpassing the peak registered in the fourth quarter of 2008. In the last quarter of 2018, consumers added $56.1 billion in credit card debt to the total outstanding, 35% more than the post-Great Recession average for a fourth quarter. The increase was the fastest among household credit categories. Credit-card users are obviously back to their old ways; delinquencies will rise fast in the next contraction, as the average consumer’s margin of safety is razor thin. According to USA Today, the average American has less than $4,000 in savings, while the rainy-day fund of 57% of U.S. adults is less than $1,000.
What makes household debt even more precarious now is that the economy is weaker than it was in 2019.
Plus, as we all know, interest rates have risen substantially. So, the implication is clear: the debt bubble appears to be much closer to bursting.