Rising Interest Payments, by the Northman Trader

Rising interest rates will slow down the economy, and probably the capital markets. From the Northman Trader at northmantrader.com:

Is anyone paying attention? I don’t know, but the cost of carrying debt has been rising and it’s already showing measurable impacts despite the Fed Funds rate still being very low.

My concern of course is that the global debt construct will bring global growth to a screeching halt (see also The Debt Beneath).

As the 10 year is already piercing above the 2.6% area now I want to pay attention to the data coming in as the Fed is dot plotting more rate hikes to come:

After all the Fed has hiked 5 times off the bottom floor in the past 2 years:

Can we see any measurable impact? You bet we can.

Here are personal interest payments for consumers:

Mind you we are still near the lows of the previous cycle and already total interest payments are near record highs.

The driver of course is record consumer debt and credit card debt (see also macro charts). But despite rates still being historically low this rise in interest rates has an impact on the consumer.

Already we see this:

“The big four US retail banks sustained a near 20 per cent jump in losses from credit cards in 2017, raising doubts about the ability of consumers to fuel economic expansion. “People are using their cards to get from pay cheque to pay cheque,” said Charles Peabody, managing director at the Washington-based investment group Compass Point. “There’s an underlying deterioration in the ability of the consumer to keep up with their debt service burden.”Recently disclosed results showed Citigroup, JPMorgan Chase, Bank of America and Wells Fargo took a combined $12.5bn hit from soured card loans last year, about $2bn more than a year ago.”

I repeat: “There’s an underlying deterioration in the ability of the consumer to keep up with their debt service burden.”

That’s a problem given the Fed’s dot plot. Before you know it consumers will be handing over a good portion of their tax cuts to credit card companies. Winning.

Is the government carrying record debt immune to this? Nope.

To continue reading: Rising Interest Payments


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