I peddle debt, that’s my job. Consequently, I’m hyper-aware of the direction of money flow. Are people earning more or less?  Saving more or less? Spending more or less? Borrowing more or less?  Interestingly enough–or should I say ironically enough–since rates have started to rise, the savings rates have plummeted in our nation.  Mathematically, you want to sock more money away when interest rates are higher so that you earn more interest, so the change seems counterintuitive, if not puzzling.  The answer though is quite simple.  We’re overspending.

Better said, we’ve overspent. As a result, rising rates means that our monthly payments have gone up and one of the ways we’ve coped is by socking away less money for future needs.  The proliferation of buy now, pay later companies (like Affirm, PayPal, Afterpay, etc.) is a testament to this pandemic, and a survey by Bloomberg points out how dire the situation is among those using these programs.  Here are some stats from BNPL users:

43% are behind on their payments.
33% turn to BNPL services after maxing out credit cards
54% admitted to buying more than they can afford
24% said their personal spending is “out of control”
42% of users with yearly incomes over $100,000 say they are delinquent on their BNPL payments
50% of BNPL consumers are already using the service to pay for essential items, like groceries.

This is yet another indication that the overleveraging of America is approaching a critical tipping point.  But no one knows what’s next.  The trigger for recessions are never the same, but one is coming.

Mortgage rates are stable after the improvement last week, and MBS pricing is hovering in a narrow channel between the 50 and 200 day moving averages.  No substantive economic data out this week to push us one way or the other, so we’ll enjoy what we have and celebrate the plateau.