Last week, score bureau DBRS raised a red flag when it calculated in the past decade average US wages have risen by just 5.7%, while consumer debt within exactly the exact same period rose 60 percent more, or 9.3%. However, while the US household’s reliance on debt to fill in the income gaps is barely news, on Monday JPMorgan found another, much more concerning debt inflection point: household debt, even fast as it might be rising, is about to be eclipsed for the first time ever by the faster rising national government debt.
As JPM writes in its weekly market recap, before the Financial Crisis, family debt relative to national government debt hit a minimum of 3 to 1 times. Ever since that time, the rise has been restricted by a mix of customer prudence and bank tightness together with liabilities growing 4% since 3Q 2008. But, JPM adds, “the exact same cannot be said of the national government, with liabilities increasing almost 150% over exactly the exact same span and nearly reaching household debt levels to the first time in modern history.”
In addition to this, the CBO projects that, even exceeding the impact of tax cuts, even authorities debt levels may continue to march up over the course of the next 10 years, ultimately hitting $25.5 trillion from the end of 2027.
While that doesn’t point to an impending catastrophe, it does mean that, should another downturn happen, the government would be far less able to come to the rescue because it did in 2008. It also suggests that although tax cuts can occur today, it becomes even more probable they’ll end up tax increases or spending cuts in the future, with tax increases likely to reach higher income families and older households being more vulnerable to spending cuts.
Ultimately, “this usually means that while consumers have taken steps in their accounts to guarantee a more compact debt burden, older and wealthier families ought to be especially cautious of the potential impact of rising government debt in their financing” especially once the next government – far more inclined to be of the “wealth redistribution persuasion” – decides to do precisely that. .