We recently have seen an explosion of creditors wishing to consult on our take of the consumer credit situation. They have (rightful) concerns that they aren’t going to be paid. We believe this likely–and usually advise them to extend loans and credit carefully and wisely. Some were a bit spooked by a recent article (which has been repeated in several other media sources:
https://www.breitbart.com/economy/2022/04/07/consumer-debt/
Our take has been as it’s always been. Inflation is an evil tax which only can be created by a governmental entity. What consumers are doing represents a perfectly rational behavior on the part of consumers and yes there WILL be entities caught holding the bag (absent some massive government bailout which will only serve to exacerbate the situation).
As one of our agents put it bluntly in an email to a client:
“The situation represents completely rational and appropriate behavior on the part of consumers. Some are sitting on cash and watching it lose 20% of its purchasing power annually solely due to the current Administration’s political and economic policy. To them it makes sense (with 15-20% real inflation) to max out their credit cards which charge interest rates similar to the real inflation they’re experiencing (or at least ones which charge less than 20% interest–their interest rate being below the current devaluation rate of dollars for items bought). Consumers are playing with YOUR money because the government is devaluing THEIRS.
We agree it’s criminal how citizens are being taxed through inflation–an evil and “executive order” type of tax which doesn’t require any form of representation or approval from a legislative body. When political marxists can’t get tax increases through legislation they simply print more money. And one dollar of their printed money leverages five in increased government borrowing.
As such consumers are buying things they might need in the future on credit. The end game is obviously to stiff the credit companies–with a potential corresponding bailout which will inevitably lead to more printing and the very real possibility of an economic collapse. It makes perfect sense to them to leverage someone else’s money for assets they might require in the future with the intent only to service the debt or ignore it entirely in the future.
When one faces an inflation-driven government policy, a rational strategy is to accumulate massive debt with the intent of the write-off happening to someone else. Live the high life while one can and also turn credit-bought assets into disappearing assets when the bill might come due.
It USED to be taking on ‘bad debt’ — that not associated with a secured asset of proper value and prudent investment — was a horrible idea. But the US government through its fiscal mismanagement has elected to change the rules. “Responsible” fiscal behavior is punished by capital gains taxes (and the threat of these going up), taxes on successful businesses, investments, and interest income. When even these taxes aren’t enough the government turned to inflation. As such, there IS nowhere to hide anymore and no ‘safe’ investments (especially since cash in savings is getting massacred). The completely rational strategy is to borrow to the hilt and leave someone else holding the bag (not unlike US government politicians do with their fiscal ‘management’).
While we believe such acts of our government are immoral and criminal, that doesn’t change the fact they are happening. As such, we fully expect your customers to borrow and default on unsecured credit with little recourse available on YOUR part. It doesn’t help that your firm has been encouraging and easily extending credit to people it thought ‘good’ risks–that paradigm has been changed through no fault of their own. We would expect folks to acquire as much open credit as possible (which your firm has been more than willing to ‘sell’ to consumers–in fact pushing your credit upon them) and then stiff you.”
While we don’t like to be so blunt, we believe this reflects the current situation and our clients should plan accordingly.
Diatomaceous-Johnson 