Credit Card Debt Growth Exceeds US Wage Growth

'Can I pay you back on Tuesday for a hamburger today?' That was the question the character Wimpy was always asking in the Popeye the Sailor cartoon series. 

It reflects the implications of the news that credit card debt growth has now exceeded US wage growth and may continue to do so for some time.

Usually, people load up on credit card debt when they dont have enough current income to cover their expenses. But it suggests that they believe they will be able to pay it back in the not-too-distant future. The problem, of course, is trying to figure out who has a reasonable chance of doing so and who is hoping, wishing and otherwise deluding themselves.

At some point, of course, if the debt obligations keep rising and the wage growth does not, there will be a huge gap between obligation to pay and capacity to do so. That is how financial crises often happen. We know that, of course, but we seem destined to relearn it every few years. Because the pressure to not permit credit expansion is greater than the demand for fiscal probity as well, frankly, as the support for actually increasing wages. Credit card debt boosts sales, higher wages cost money and fiscal probity is just an election year slogan, so the odds are already stacked.

The lines will cross and the bubble will burst but if history is any guide, whether any steps will be taken to do something about it before that happens seems increasingly remote. JL

Walter Kurtz reports in SoberLook:

In the long run this is not going to be sustainable...
Over the past three months, the year-over-year growth in credit card debt has exceeded wage growth in the United States. This is the first time we've seen this trend since the Great Recession. While it clearly indicates improved US consumer confidence (and all the spending helps boost China's trade surplus), in the long run this is not going to be sustainable.

Year-over-year growth in credit card deb minus growth in average hourly wages