U.S. Credit-Card Balances Approach $1 Trillion

Historically, a high percentage of U.S. consumers have paid off their credit-card debt from holiday season spending in the first few months of the year.

That didn’t happen in Q1 2023.

Here’s a May 17 headline from Marketwatch:

Americans are not paying off their credit-card debt. We should be concerned.

Indeed, the credit-card balance of U.S. consumers is $986 billion and the balance didn’t get to that level just because of holiday spending. People are increasingly using their credit cards for everyday necessities.

Consumer debt deflation likely looms as high interest rates makes servicing credit-card debt increasingly difficult.

Debt deflation is usually preceded by an excessive build-up of non-self-liquidating credit.

Robert Prechter compares this with self-liquidating credit in his book, Last Chance to Conquer the Crash:

Self-liquidating credit is a loan that is paid back, with interest, in a moderately short time, from production. Production facilitated by the loan — for a business start-up or expansion, for example — generates the financial return that makes repayment possible. The full transaction adds value to the economy.

Non-self-liquidating credit is a loan that is not tied to production and tends to stay in the system. When financial institutions lend money to consumers for purchases of cars, boats or homes, or for speculations such as purchases of stock certificates and financial derivatives, no production effort is tied to the loan. Interest payments on such loans must come from other sources of income. Contrary to nearly ubiquitous belief, such lending is almost always counter-productive; it adds costs to the economy, not value. If someone needs a cheap car to get to work, then a loan to buy it adds value to the economy; if someone wants a new SUV to consume, then a loan to buy it does not add value to the economy. Advocates claim that such loans “stimulate production,” but they ignore the cost of the required debt service, which burdens production. They also ignore the subtle deterioration in the overall quality of spending choices due to the shift of buying power from people who have demonstrated a superior ability to produce or invest (creditors) to those who have demonstrated primarily a superior ability to consume (debtors).