$4 Trillion In Debt And It’ll Probably Get Worse - InvestingChannel

$4 Trillion In Debt And It’ll Probably Get Worse

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$4 Trillion In Debt And It’ll Probably Get Worse

It’s striking. To listen to a big bank’s earnings conference call and compare their view of the consumer debt landscape to reality. To the actual, broad data the government regularly reports. 

Last week, JPMorgan Chase (JPM) reported earnings. Of course, the bank crushed it. 

  • Profits were up 67.5% year-over-over at $14.5 billion. 
  • Revenue for the quarter came in at $41 billion, up 34% annually. 

And, of course, throughout the company’s earnings conference call, executives had nothing but positive things to say about “the consumer.” Here are some verbal specimens, direct from the call:

Both U.S. consumers and small businesses remain resilient…

Yeah. I mean, to us, I think we still see this (this, being a slight slowdown in spending) as a normalization, not a deterioration story when we talk about consumer credit…

..the consumer continues to surprise on the upside here..

The consumer is in good shape.

Any warnings on the future – understated, at best. 

This rosy outlook has to have something to do with JPMorgan Chase having a base of customers in much stronger financial positions than the typical American. Because you know the data. The Juice constantly puts the outrageous numbers on debt in front of you. And they don’t match the consumer is in good shape narrative. 

Maybe we’re really living in this haves and have nots economy we keep talking about, where JPMorgan’s illustration of the consumer (managing credit well and in a strong position on housing) is killing it and this other subset of Americans are struggling to get by. 

The Writing Has Been On The Wall For A While

Earlier this month, we updated Generation X’s somewhat terrifying retirement crisis. Of course, Gen X isn’t alone. The American dream of home ownership and a comfy retirement has long been dying across generations. And not only in the U.S., they’re experiencing the same troubles in Canada

So the story on that aspect of the equation – housing and retirement – has been percolating for some time. 

If you follow this stuff – and have been for years – none of this surprises you. 

But it’s sort of enlightening to look back at the stories and data on debt and see how literally nothing other than the numbers (which keep moving higher) has changed. 

It feels as if we’re building another house of cards.

Consider millennials. 

Here’s an excerpt from a March 2019 story on that generation’s debt situation:

In the recently released report, the Fed claimed millennials are now over $1 trillion in debt, a 22 percent increase from just five years ago.

The story goes on to lament how economic crisis after economic crisis has, apparently, uniquely affected millennials. 

Fast forward to today – 2023 – and here’s an excerpt from a story reporting on millennial debt loads:

The demographic accumulated nearly $4 trillion in debt during the fourth quarter of 2022, reflecting a substantial $140 billion rise from the preceding quarter. The surge represents a 27% increase since late 2019, constituting the most significant upswing in debt accumulation since the 2008 financial crisis.

The source of these stories doesn’t really matter. They’re interchangeable. A simple Google search – filtered to any year in recent memory – generates the exact same or similar coverage.  

This raises the question, specific to millennials yes, but also across generations – what’s the problem? The increased cost of seemingly everything, an attachment to the American dream or a sense of entitlement that makes people consider $50-to-$100 brunches one of life’s necessities?

Probably a mix of all three things, depending on the person or household. 

If the American dream is indeed dying or dead, not everybody’s accepting it. 

It’s still considered righteous to chase this dream, even if it’s – ironically – putting you in financial trouble. 

Let’s face it – it’s not easy to service a mortgage, keep a nice car in the driveway and save enough each month so you’ll have a $1 million-plus nest egg come age 65 (or thereabouts). But some people who have no business – as in the financial wherewithal – juggling all of these things still are. They’re making the attempt, sometimes at the expense of their time, health and sanity. Because, again, nobody will criticize you for aiming high, especially if you have a good job and work lots of hours. 

One thing we often forget – older generations lived through periods where they had to sacrifice and/or things were tight (from the Great Depression to major wars to the oil shock and outsized periods of inflation in the 1970s and 80s). Austerity was a necessity for people during these difficult times. 

Even if we go kicking and screaming, large swaths of the debt-ridden population might be forced to learn the meaning of that word pretty quickly. 

The Bottom Line: Thanks to more recent periods of prosperity and who knows what else (a bull stock market, influencers and internet millionaires?), austerity isn’t in the vernacular of many people younger than 50. But dropping $60 for a couple mimosas, a subpar omelet and a side of potatoes and toast is. 

And herein lies the problem. Brunch – and other discretionary spending – isn’t a problem, if that’s your jam and you can afford it. If not, it comes down to accepting the reality that you can’t have it all. Is it a new Tesla or that brunch? Is it a highrise apartment with an extra bedroom for an office or a modest studio in a second tier part of town? 

As usual when it involves your money, it comes down to choices. And a realization and acceptance that, for some of us, the old American dream should no longer be the standard. Because if we keep holding ourselves to it, we might be setting one another up to fail.

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