Saturday, December 02, 2023

To Win, Biden will Forgive Credit Card Debt

On Thursday, during the company’s quarterly earnings call, Walmart CFO John David Rainey told investors that an unexpected softness in October sales, “gives us reason to think slightly more cautiously about the consumer versus 90 days ago. There’s a number of different reasons — we can’t put our finger on it exactly.”

I can.

In 2021, the Biden administration and his socialist economic advisors decided to embark on a grand experiment to give away free money under the guise of “pandemic relief.” In total, the government handed out $6 trillion to businesses, individuals, families and the unemployed. For example, a family of four with a total income under $160,000 received an unexpected windfall of $11,400.

Remember, the pandemic unemployment rate peaked at 14.8% in April 2020. That means 86% of those participating in the workforce still had a job, but virtually everyone, regardless of work status, received the pandemic stimulus. This was more money than most of the recipients ever saw at one time in their lives, and so the spending party was on.

To make matters worse, the government issued moratoriums on rent and student loan payments, putting even more money into the pockets of Americans who weren’t that bad off to begin with. Then, to ensure an ugly inflationary bubble would follow, Biden gave $1 trillion to small businesses with the caveat they wouldn’t have to pay the money back if the owner used a certain portion to pay staff. Smart business owners took the government’s money and paid their employees and then pocketed the money they would normally have used for payroll.

Finally, the 15% of the population that was unemployed not only received the stimulus money, they also benefited from a cumulative total of $567 billion in federal unemployment benefits. Mind you, this was after receiving their normal allotment of state benefits. Initially, that amounted to $600 a week per unemployed worker but was eventually pared down to “only” $300 per week.

Inflation Takes Off

In spite of what the government was telling us at the time, it was obvious where the free money party was going to end up. In many instances, workers were making far more being unemployed than working, so they either claimed they were concerned about Covid and quit, which still allowed them to collect benefits, or they leveraged their employer for more money… A lot more money.

The unexpected windfall compelled those with wads of fresh cash to hit the big box stores, and TVs and other non-essential luxuries flew off the shelves. Demand severely outpace supply, and inevitably, inflation skyrocketed and peaked at 9.1% in June 2022. Signaling Red Alert, the Federal Reserve swung into action and has been struggling to bring inflation down ever since. Unfortunately, the Fed never realized its rate hikes were unnecessary. Inflation was always destined to decline dramatically once the free money giveaway ended.

Looking at the macro side, human beings are greedy and relatively predictable. Every time they achieve a new level of affluence, they are loath to go backwards and will employ whatever methods are at their disposal to maintain their elevated lifestyle. In the case of those who became used to the free money, that has meant facing the reality of returning to work, tapping into savings or borrowing.

Which options do you think most people would choose first?

The historically low unemployment rate signals that many Americans are choosing the latter two options over the former. In fact, personal savings have declined from $1 trillion in May to just under $794 billion in August. However, this is nothing compared to the staggering reduction from the $6 trillion that households had stashed away in April 2020. Even more troubling is the rise in credit card delinquencies, which is a signal that consumers are becoming cash poor. During the third quarter of 2023, credit card balances hit a new high of $1.08 trillion, rising $48 billion from the prior quarter. Household debt increased 1.3% to $17.29 trillion.

Delinquencies on credit cards and auto loans are also rising sharply, particularly among millennials with auto and student loans. In the third quarter, 5.78% of credit card debt became “seriously delinquent” or past due over 90 days. That is up from 3.69% in the same period a year ago. Interestingly, the delinquency rate among millennials, the group that thoroughly exploited the benefits of free money during the pandemic, hit 9% in the third quarter. With the reintroduction of student loan payments, and the discontinuation of rent moratoriums, this demographic is stretched to its financial limits.

Biden will be Left with One Solution

You have seen this all play out before. When the squeeze becomes intense, and the economy sinks into an inevitable recession, the demands from those who spent their pandemic money irresponsibly will be deafening. It is very possible that the economy declines rapidly as the forward momentum quickly reverses without a strong consumer to support spending. When that happens, and two generations that have never experienced a recession find themselves with no money to pay the rent, the pressure on the leftists in government to issue more “stimulus” checks will be relentless.

In general, these are not people who have been battle tested by the hard knocks life doles out. They have been pampered, coddled and given the adult version of participation medals instead of being taught the value of hard work and saving money. Frankly, this is a societal problem of our own making. You can’t expect these spoiled generations to cope with the harsh realities of everyday living without prior training. Like a domesticated wolf let out into the wild, they’ll be eaten alive.

Let us hope that Republicans win the presidency, or at the very least, hold one of the Chambers of Congress because with a $34 trillion deficit that’s costing the U.S. taxpayer $1 trillion in interest per year, we simply cannot afford to give away any more free money.

But that won’t stop Joe Biden. Financial ruin is of no consequence in the face of political expediency. If a recession grows roots, and the leftist Democrat constituency is under water, you can bet that if he is able, Biden will turn on the free money spigots to get the dead beats, drug addicts and illegal aliens off his back, and if the country sinks further into the abyss, well, he’s 80, so…