photo of a pile of Visa and Mastercard credit cards.

The Piper Of January Comes Calling – The Consumer Debt Casino Bet


by Richard Cameron


Yes, I know it’s a sore subject …

January is a month of coming to grip with painful realities. Well, they all are, but January stands out a bit. Mixed in with all the erstwhile commitments to restructure priorities and make a new, fresh start is the reality for most Americans that they have accumulated yet more financial obligations.

Retail associations such as the National Retail Federation report an increase in spending by the “average American” of $1,050 during the holiday season – an increase of $50 over 2018.

The added spending is presumed to be partially accountable to the claims from Donald Trump that he is presiding over the “greatest economy ever” – aided and abetted by the financial reporting in the mainstream news media bolstering the notion that the economy is “continuing to grow” and the markets are continuing to rally.

Trump tweet from May 2019, claiming that he has presided over the strongest consecutive period of job growth and including the phrase, "JOBS, JOBS, JOBS"

Incidentally, Trump’s claim in that tweet, does not survive a fact check, which of course, is hardly surprising, given his record of trumpeting falsehoods – as of December last, totaling 15,543. 


Strongly factoring into the perceptions of consumers about the state of the economy is the rampant presumption that unemployment is low and job security will persist indefinitely. There is a lot to dispute in those characterizations, but we’ll just mention that GDP growth has not panned out as Trump promised and that slowing growth is a leading indicator in a corresponding slowdown in jobs.

The “U-3” unemployment statistics, exclusively cited in top line economic reporting are quite misleading. The more comprehensive stat, “U-6”, tells a much different story as does the Labor Force Participation Rate (LFPR).

The LFPR has not increased from the level of 2013. Under Trump’s term it has remained at 63.3 percent. The obvious question is, “if the unemployment rate has decreased, shouldn’t the LFPR increase correspondingly?” An answer to that exists in the details of the U-6 unemployment number.

HRCapitalist describes how the U-3 number is a conveniently superficial reading of jobs in the U.S.:

The U6 unemployment rate counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts “marginally attached workers and those working part-time for economic reasons.” Note that some of these part-time workers counted as employed by U-3 could be working as little as an hour a week, but they prefer full-time employment but haven’t landed it yet. And the “marginally attached workers” include those who have gotten discouraged and stopped looking, but still want to work. 

So, if the U-3 statistic, which only folds in work of any kind and any duration, is 3.5 percent unemployment, what is the real number that neither Trump, his administration or financial reporters care to report or discuss – U-6? 

U-6, it turns out, is more than double the U-3 number – at the most recent reporting period from BLS, 7.7 percent!

Wage growth, outside of some states marginally increasing minimum wage, continues to be well below expectations of lower unemployment numbers. Daniel B. Klein at MotleyFool points out that:

Low worker supply plus relatively strong demand for employees should equal higher wages. In most industries, that simply has not happened. Overall in the third quarter, average wages only increased by 0.5% from the second quarter, and 2.6% year over year, according to The PayScale Index. That anemic growth barely kept up with inflation, meaning in real terms, despite conditions that appear to be the most favorable for U.S. workers in decades, most of them are essentially treading water right now.

It’s interesting, to say the least, that one of the factors that Klein has identified for some major employment sectors holding back on raising wages to attract workers, is that the businesses themselves are hesitant and uncertain about the length and duration of the economic expansion.

While we’re on the employment topic, it’s worth mentioning some fallacies about the reporting of “new jobs added to the economy”. Those reports are issued monthly and are subject to being revised quite dramatically. There is a lot of volatility in the accuracy of such reports. They can be off by tens of thousands and in some instances, hundreds of thousands. In fact, Jack Kelly, writing in Forbes, relates that:

In a stunning announcement, The Bureau of Labor Statistics reported that the official payroll numbers in 2018 and 2019 were vastly overstated. It turns out that the amount of new jobs created were tremendously inflated and had to be reduced downwards by more than 500,000 jobs. This embarrassing admission raises questions as to the actual strength of the job market, the success of the Trump-initiated tax cuts and how exactly these numbers are calculated.  

But let’s take a second look at the jobs reported that actually survived the revisions. The Labor department reports only on the highly volatile job growth estimates of quantity, but the data says nothing about quality. Are they what most people imagine they are when the numbers are Carney barked in the daily news?

A study by the Brookings Institute, a centrist D.C. public policy think-tank, determined that a large percentage of the new jobs reported by the Labor department are low-wage jobs. According to the report, low-wage workers make up a huge part of the workforce. Over 53 million; 44% of all workers ages 18 to 64 in the U.S.—earn low hourly wages.    

And financial reporter Katie Dmitrieva in Bloomberg observed:

An index and accompanying report Thursday from analysts at institutions including Cornell University show that in the last two decades, the quality of jobs has eroded as lower-wage and more precarious work has become a greater share of the labor force compared with full-time and higher-wage positions. Their gauge also dropped in the two years since Donald Trump was elected president, offering a counterpoint to his boasts about strong employment.

Borrowing from the future

Back to that $1,050 per ‘average American’ holiday spending.  Is it prudent, grossly irresponsible or irrationally exuberant?

Consider this, close to 6 out of 10 Americans do not have even $1,000 in a savings account. Any unforeseen event could find them upside down. An engine repair, a transmission overhaul, a medical procedure, a new, costly prescription not covered under your medical plan – if you have one to begin with. How about roof repair or broken appliances or just a worn out set of tires?

So then, where is this $1,050 that was spent in November and December on things, some of which the recipient was less than thrilled about and some of which will be featured at your garage sale next year or the year after, coming from?  If you guessed, personal credit, i.e. credit cards, aka “plastic” – go to the head of the class.

If that number wasn’t staggering enough, hold onto your wallet. U.S. Consumer Debt hit $14 Trillion last year – a higher amount of debt than at the zenith of debt in 2008 – the Fukushima of the financial meltdown.

graph demonstrating the uptick in credit card and other revolving debt since the end of the Great Recession debt

A backpack full of books and a ball and chain

In addition to the ballooning credit card debt are other signs that the finance industry is pushing the envelope in a quite hazardous manner. One of them is the topic of considerable discussion – student loan debt. summarizes the risk to the economy:

About 43 million adult Americans—roughly one-sixth of the U.S. population older than age 18—currently carry a federal student loan and owe $1.57 trillion in federal student loan debt, plus an estimated $119 billion in student loans from private sources that are not backed by the government.

According to a report from the Federal Reserve, outstanding student loan debt is having a detrimental effect on economic growth and that effect is increasing. In the 9 year period the last data set was measured, participation in home ownership among ages 24 to 32, dropped nearly 10 percent. Not a promising trend.

Ben Mohr, senior research analyst of fixed income at investment consultant Marquette Associates told MarketWatch that student loan debt  — often cited as a source of consternation for economists and strategists — saw a notable increase.

At the end of the first three months of 2019, student loan debt hit $1.486 trillion, according to data from the New York Federal Reserve. By comparison, student loan at the height of the financial crisis was $611 billion and has been on an upward cycle every year. “It has ballooned and that’s a dramatic increase”, Mohr said.    

“Wanna buy a car? How much do you want your payment to be?”

Next on the radar screen, but under reported is the trend in automobile financing. New cars are dramatically more expensive than ever.  In the last decade the average of increase in the price of a new automobile is up 29 percent.

The average selling price of a new car in the U.S. climbed to $36,718, with interest rates hovering around 6%, according to automotive information site Edmunds. That’s up from $35,742 in 2018, which was already a 2% increase from 2017, according to Kelley Blue Book. Top selling cars like the Toyota Camry and Honda Accord are now in the $30K price range with options. 

The increase in truck prices is even more alarming. The Detroit Free Press reported pickups are quickly moving away from affordable and closer to luxury prices. Through September, the average price of a new full-size pickup truck checked in at $48,369. In 2008, the average price was just $32,694.

The practical, or more appropriately, impractical consequence of all this is that manufacturer’s are contriving exploitative financing schemes to accommodate consumers of these overpriced vehicles. Dealers are now luring buyers with monthly payments based on 72 and even 84 month payment terms.

38% of new-car buyers in the first quarter of 2019 took out loans of 61 to 72 months, according to Experian. More alarmingly, Experian’s data shows 32% of car shoppers are signing loans for between 73 and 84 months.

Nerdwallet explains why these sorts of loans carry possibly extreme risks to consumers – higher interest rates, instant depreciation, loan rollovers, maintainance upkeep while still making payments, etc. – but an additional point of concern exists as well.

Not only are these absurd loan terms going to form yet another consumer debt bubble in the coming decade; but if the inevitable economic downturn arrives in the midst of these loan cycles, a lot of cars are going to be repossessed and a lot of personal credit is going to be in shambles. 

Caveat Emptor

What is the takeaway from this? The economy is not “booming” for anyone other than the 10 percent of Americans who own 84 percent of equities on the various stock exchanges. The working poor have no stake in these investments and the wealth trend associated with them and the “middle class” are only participating marginally.

The Newtonian law of physics has not carved out an exception for the U.S. economy. Stock values are inflated, mostly due to Federal Reserve policy, aided by Donald Trump’s “tax reform”, an oxymoronic phrase, which has been proven to not have accomplished anything but widen the income gap and add over $1.5 Trillion to the national deficit.

The economic expansion is pushing the historic boundaries of recovery cycles and the actual Gross Domestic Product, which Trump touted would be 4, 5 or even 6 percent under his watch, is running in the neighborhood of 1.9 – 2.0 and has been the entire three years he’s been in office.

What goes up, must come down. This is not only the trend of history but in many ways, it is the way the economy is structured intentionally.

The last time the economy went into the dumpster, banks and investment groups with access to close to zero percent money, purchased tens of thousands of the very same homes that families had been foreclosed and evicted from as a result of banksters crashing Wall Street with “Frankenloans” (investment vehicles known as Mortgage Backed Securities, a type of derivative).

The families that were able to get back into homes are now mostly renting from the players the game was rigged for (see Steven Mnuchin, Trump’s Secretary of the Treasury). The ones that weren’t are in a persistent cycle of homelessness.

It’s not what they tell you – it’s what they don’t …

Because none of what I just outlined fits on a bumper sticker and more significantly, they are inconvenient facts not in the best interests of corporate media to inform you of, they don’t emphasize them or include them in the daily quick hit of financial reporting. Why don’t they? The better question is, why would they? Keep in mind, the job of these networks and large media entities is to advertise things to you and persuade you to immerse yourself in the romance of materialism.

The result of that is that when “Consumer Confidence Indexes” are collected, the individuals surveyed have little to no concept of how the mountain of consumer debt may avalanche into an economic crisis.

The follow on to that is that these consumer sentiment surveys, known to economists as “soft data”, tend to have a self fulfilling prophecy effect. People see the irrational exuberance and ask themselves, “well, why should I be cautious – the job market is great, the stocks are climbing and a recession is a mirage.” That’s also what Trump is constantly misleading his voting base about, despite the fact that as you have seen, at best, he’s grossly distorting the true picture of the economy and at worst, he is outright lying.

Remember, Newton was right about gravity, the economy has always run in cycles, the recovery from the “Great Recession” of 2008 is the most anemic in modern history and the last people to see a collapse coming are consumers and small investors.

Let the buyer beware. 


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2 thoughts on “The Piper Of January Comes Calling – The Consumer Debt Casino Bet

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