June 1, 2016 by Mark Hammerstrom
“Number Two: ‘Why not use your knowledge of the future to play the stock markets? We could make trillions.’
Dr. Evil: ‘Why make a trillion when we could make… billions?’”
–Austin Powers, The Spy Who Shagged Me
I don’t know about you, but I have a hard time getting my mind wrapped around something that numbers in the millions, let alone billions and trillions.
The word itself –‘trillion’– does not exactly cut it, in my opinion. I think it desensitizes us to the fact of how really large it is. Writing out the digits, I think, makes it a bit clearer: 1,000,000,000,000. That is a one followed by twelve zeros. Shades of Dr. Evil! That is a really big number.
Words can mask a lot. I remember as a kid being told the closest stars to us, the Alpha Centuri group, were only about 4 light years away. No problem; why don’t we go there? Then someone patiently explained to me that one light year is about 6 trillion miles. Oh, 24,000,000,000,000 miles. Of course, don’t forget we can’t even come close to travelling at the speed of light so…well…never mind.
Now, while I admit it is not even as entertaining as an old Austin Powers movie, or contemplating the distance to the nearest star system, last week the Federal Reserve Bank of New York released its quarterly report on Household Debt and Credit (first quarter, 2016). In the report the New York Fed said that at the end of the first quarter of 2016 “total household indebtedness was $12.25 trillion…” When it is written out it looks like this: $12,250,000,000,000.
American household debt actually fell during the ‘Great Recession’ by some 15%, largely related to the decline in new home mortgages. It appears that the slow but strengthening economy has once again given consumers the confidence to borrow more and we find ourselves just 3.3% below the all-time high.
My first reaction was ‘Holy insanity Batman—we are making the same mistake expecting a different outcome!’
Yet according to some economists this may not exactly be bad news. Economist Christopher Low (chief economist at FTN Financial), during an interview on CNBC’s “Closing Bell”, said this may actually be a good sign for the economy. “It is a sign that consumers are feeling a little bit better. They’re more comfortable spending money,” he said.
According to Low, because it is “…really hard to get a home equity line of credit…People are using credit cards to pick up some of that slack.” He points out that household balance sheets are pretty healthy right now, so confidence in taking on more debt rises.
He may be right as the New York Fed report goes on to point out that overall delinquency rates have improved with just 5% of debt in some stage of delinquency, while the credit scores of new mortgage borrowers increased slightly. Fewer consumers also had a bankruptcy notation added to their scores, a drop of 19% from the same period in 2015. So, while we are taking on more debt, we seem to be able to pay it off for the most part and that is showing in improved credit scores.
In our experience this can certainly be good news for our clients, but also perhaps a portend of not so good things to come. Low points out that, indeed, while delinquencies are near lows, if that changes we need to worry. We would agree: this is a very big number and can catch overconfident consumers off guard if interest rates change quickly or the economy goes south. This can catch our clients off guard, too, and we encourage them to monitor and take quick action on their delinquencies even though revenue and cash flow may be more comfortable than in years past.
United Credit Service is here to help you tightly manage your outstanding debt. We always suggest vigilance, in good times and bad; that you make sure your credit policies are clear and up to date, and that as your collections expert you look to us to serve you in the best way possible.
Founded in 1950, United Credit Service, Inc. is a full service, licensed revenue cycle management and debt collection agency in Wisconsin providing effective, customized one on one management and recovery solutions for our business partners. Visit our website at http://www.unitedcreditservice.com, call 877-723-2902 or check out our YouTube video.