A debt bubble has formed in the US economy as debt piles up amid 'YOLO' spending

• America has a „super-duper” credit bubble on its hands as „YOLO spenders” take on massive debt, David Rosenberg said.
• U.S. household savings are at a record low of 3.7%, while consumer spending grew by $208 billion last quarter, financed with debt.
• „As far as consumer credit is concerned, the default cycle hasn't just abated. It's here.”

Today's consumer—or rather, „YOLO spenders„- We've got a huge amount of debt, said top economist David Rosenberg. And it's created a huge bubble in the pocket of the American economy.

„There is no consensus today, and once again, we have a super-duper credit bubble on our hands,” he wrote in a note Thursday. „It's not about fiscal irresponsibility at the government level; the confusion is that consumers command a dominant 70% share of the economy.”

American households today have a savings rate of just 3.7%—well below historical levels of 9%. Meanwhile, Consumer spending A $208 billion explosion in the fourth quarter of 2023.

A recent New York Fed report showed households added $212 billion to their debt load over the same period. That means 100% of the increase in consumer spending was financed with debt, Rosenberg said.

If consumers drive 70% of the US economy, being crushed by the weight of that debt could mean big trouble.

The thing is, American consumers don't seem to be grieving. Rosenberg explained that consumer balance sheets are in „great shape.” But he also warned that cracks are beginning to show.

Credit card delinquency rates are rising, with 30-day default rates rising to 8.5% compared to 5.9% a year ago. And „serious” 90-day defaults are also on the rise, and delinquency rates for auto loans and mortgage loans have risen of late.

„One out of every twelve credit card holders is delinquent,” Rosenberg said, noting that the last time unemployment in the U.S. was 9% was in 2011. Today, it is near a historic low of 3.7%.

„As far as consumer credit is concerned, the default cycle simply hasn't subsided,” Rosenberg said. „It's here.”