Lenders are seeing an alarming rise in credit card balances and delinquencies on auto loans. This sign that Americans are struggling with their bills is setting off alarms all over the economy.
Interest rates have been elevated for the past two years. In that period, the average rate charged by credit card companies has increased to 21.51% from 15% in 2019.
Over that same period, 9.1% of credit card balances became delinquent. This is the highest rate we’ve seen in delinquencies in over a decade. When you look at the amount of inflation we’ve had in staples such as groceries, gasoline, and housing, it’s easy to understand why this is occurring.
Auto loan interest rates with a 60 month term are now at 8.2% for an individual with good credit. That’s up from 5.3% in 2019. 8% of auto loans are now delinquent which is also the highest rate we’ve seen in a decade.
I wrote a column a couple of months ago where I said that we now have a Tale of Two Economies. One where the upper classes are spending money like a sailor on leave and the lower classes are struggling to make ends meet.
This phenomenon couldn’t be more apparent given this new economic data.
We’re all waiting for the announcement tomorrow afternoon about the Fed Funds Rate decrease. Will it be a quarter point or a full half point drop? Time will tell.
Historically economists have called the Fed Rate Increases an escalator ride while the Fed Rate Decreases are termed an elevator ride. Why? Because the increases are more gentle and slower while the decreases are larger and faster.
The faster decreases are caused by the Fed trying to get the economy moving again before causing a recession. They have to balance this against moving too quickly while inflation isn’t yet under control. They don’t want inflation to rear its ugly head again, when they would be forced to begin the cycle of interest rate increases a second time to get it back under control.
We’ll all see what they do tomorrow afternoon. Main street could certainly use some help right about now.
Let me leave you with this…
I’ve had several conversations with clients who are concerned about the upcoming elections and the tax proposals put forth by both sides. These proposals, if put into place, could become debilitating for many.
One side is proposing a wealth tax which could become costly to many estates and higher net worth individuals. They’re also suggesting a price freeze which would hurt both producers and retailers.
The other side is suggesting tariffs on all imported goods. This would effectively increase prices across the board on imported goods because those price increases would be passed on to consumers.
Let’s all take a moment, catch our breath, and realize that nothing will get passed without the support of both houses.
Any tax bill changing the rules needs to go through the normal legislative process, be voted on, probably be altered to include the various changes from both houses, be voted on again, and then be signed by the new president. This new legislation normally wouldn’t take effect immediately. It would make changes to next year’s tax cycle.
As such there would be plenty of time to make changes and plenty of time to plan. Doing anything at this point would be premature.
We have no idea what changes will occur if any in the first place. As such, any changes we made now would probably be completely wrong.
Let’s also remember that what a candidate says they’ll do, versus what they actually do if they win, are normally two completely different things.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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