Crazy High Interest Rate Debt Keeping Money Supply Afloat But Not For Long | Rafi Farber
Summary
Transcript
Whether a commercial bank or a regional bank loans you a credit card, debtor money on your credit card line, or the Federal Reserve loans money to the federal government by buying a treasury. It’s all qualitatively the same thing. Hey guys, rob off here from the end game investor. It’s election day in Israel for the local municipality thingamabobs and I don’t care. I don’t care. You don’t care? Nope, I don’t care.
I don’t care. Well, I didn’t think you slept with guys like Lumberg. Which is why I’m sitting down to talk about the money supply. Because whoever wins these elections is going to get to be the mayor of whatever town they’re the mayor of through the endgame. I’m pretty sure of it, because the next election is at least four years away. So good luck to the mayor who has to guide his city through the endgame.
It’s going to be fun. Anyway, today I wanted to talk about why the money supply is expanding. The answer is not very warm and fuzzy for the mainstream economists, because the money supply is expanding with very poor quality debt. In a fiat system, of course, money and debt are two sides of the same coin. Because whether you’re the Federal Reserve or a bank, you loan money into existence because you can’t create gold, but you can buy debt with new gold derivatives.
If you are a commercial bank, the best thing you can do is loan to a viable business because they can make profits and then you can get your money back. But eventually that topples over in a recession or a depression or a credit cycle bust, whatever you want to call it, it’s all the same thing. And then the Fed has to take those assets, has to take that debt that was on the bank’s balance sheet and put it on its balance sheet and hand the bank’s reserves.
The Fed can create money by loaning it into existence to the federal government, which is just buying the highest quality bond, which is just another debt. Whether a commercial bank or a regional bank loans you a credit card, debtor money on your credit card line, or the Federal Reserve loans money to the federal government by buying a treasury. It’s all qualitatively the same thing. If that debt is low interest rate, there is a greater possibility that it will be paid back and the money supply growth will continue.
But if that loan is given at, say, 22% interest to a bunch of gen. Zers who are making videos on TikTok that they do not intend to pay back this loan, that they got at interest free rates on a credit card advance that moved to 20% interest rates at a certain time, let’s say 1516 months or whatever it is, then you have sudden default wave and the money supply collapses back down because the debt that is counted as part of the money supply goes out of existence very quickly.
When a bank loans you money on a credit card advance, it has an asset called your credit card debt, which is counted as part of the money supply. If it is not paid back, that part of the money supply disappears. Now, either the bank can be bailed out and that debt can go on the Federal Reserve balance sheet and the Fed can lose the money, which disturbs the value of the dollar, of course, or it cannot be bailed out and the money supply goes down and we end up with a business cycle bust anyway.
So the point I’m trying to make here is that the increase in the money supply of late has been a very low quality debt, very high interest rate debt on consumer loans, to gen Zers on TikTok that are doom spenders and buy whatever they can because it makes them feel better, because they don’t think that they can save in order to raise a family and have a normal life and they’d rather have sex operations and whatever it is that they do not.
Cool bro. Our genders are all reversed. Now I got a whatcha call it instead of a cajigger, you stupid whatcha call it. But anyway, here’s what I want to show you. This chart entitled rutro raggy shows credit card debt against interest rates for accounts charged interest. This isn’t the average interest rate on all credit cards, because some people take loans on credit cards and then pay them all back, or they just get a cash advance and they pay it back anyway.
So no interest is actually charged. These dots are interest rates actually charged to credit card holders that are being charged interest because they haven’t paid back their balance in full. So you see here that this line has been going up since 2021, when it bottomed here after there was a flood of credit card debt being paid down with the COVID bailouts and the COVID consumer bailouts, or whatever it was.
Biden was passing out money, trump or whoever it was, or both of them. And since then, credit card debt has rocketed from about 750,000,000,000 to one point something trillion. That’s about $300 billion, let’s say. And as that has happened, the interest rate that has been charged on this credit card debt has rocketed from about 16. 5% to 23% or 22. 5%, exactly what it is, I don’t know, but it’s close enough.
This is all very low quality debt. But let’s go to the next chart, and I’ll show you something even scarier. Oh, my God. This is the delinquency rate on credit card loans, all commercial banks. How many loans are delinquent? I think that means 90 days plus they haven’t paid their minimum payment. This doesn’t mean that they have balances. It means they haven’t paid anything. They haven’t paid the minimum payment, which is usually 1%.
If they can’t even pay that, they are not paying it back. So we see here that this rate bottomed in Q three of 2021, when interest rates were at an all time historic low across the board at 1. 54%. This is the lowest liquensy rate ever. And since then, it has rocketed up to 3. 1%. This is of last quarter. This doesn’t count. January and February. I believe that this rate is going to crank up significantly very soon, or if it hasn’t already.
But I wanted to show you this kajiggering of the chart. If we go to percent change on a quarterly basis, then I can show you this, that the move from the bottom in Q two or Q three, 2021, from 1. 65% or whatever it was to now, has been the highest increase in delinquency rate change ever. We have been above zero for 1234-5678 quarters straight. That has never happened before, except for a period between 1994 and 1997, again, when the Fed was raising interest rates aggressively.
And even then, it was nowhere near as high as the rate of acceleration now, which hit a high of 13%. And here it was a high of 6%. So we’re in a much worse situation now with a lot more high interest rate debt. And, of course, interest rates on this debt is a lot higher, are a lot higher than the interest rates that were on this debt, which were much, much lower.
But this is the most sustained positive change, or really negative but positive change in terms of the numbers of delinquency on credit cards. And this is only going to increase. And all that money that is now part of the money supply because of this credit card debt, is going to be erased. My point here, my friends, is that the money supply appears to be growing slightly now. It is still shrinking on an annualized basis.
And I’ll show you that right now. This is the annualized change in the money supply. We are still negative going back to how far the fed has records going back to 1981, still negative. The negative rate is slightly less than it was, and it is the lowest negative rate since January 2023. So yes, the money supply has been shrinking slightly slower. It has not been growing on net on an annualized basis.
But before the money supply stops shrinking on net, I do believe we’re going to see massive credit card defaults. Because these gen Zers who are buying sex operations or whatever it is that they’re buying do not care about paying back their debt because they live with their parents and they are going to default. And once they do, the money supply will be shrinking once again. The endgame investor has moved to substack.
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And yes, I did find this source. It was fascinating. I didn’t know it existed and I’m glad to share it. And if you are a founding member of the substac, you will get free access to the Patreon, which you can find a link to in the description at the bottom. This is Ralphie with the endgame investor, and I’ll see you guys soon. .
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