A renowned economist’s recent prediction mirrors earlier warnings by Tesla Inc. CEO Elon Musk and investor Michael Burry, highlighting the potential economic fallout due to surging credit card debt among American consumers.
What Happened: Carl Weinberg, Chief Economist at High-Frequency Economics, on Wednesday, told CNBC that consumers are increasingly financing their spending by racking up credit card debts, with interest rates spiraling out of control, Business Insider reported.
He anticipates a pullback in consumer spending, leading to an economic slowdown in the new year.
“Consumers are just waking up to the fact that they’re financing their spending by running up their credit cards, and that the interest on those credit cards is over the top, out of control, off the hook right now.”
“That’s going to lead to a retrenchment in consumer spending as we get into the new year.”
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Why It Matters: In October, Musk had similarly warned about high levels of consumer debt, suggesting that the inability to pay off these debts could lead to significant financial distress. “If you cannot pay them off and you’re still accruing interest at 20%, you’re at best headed to a bad place.”
Michael Burry also cautioned in 2022 about a potential economic slowdown and recession owing to increased consumer spending amidst rising prices and interest payments.
These concerns stem from the brutal inflation and climbing borrowing costs faced by American consumers over the past 18 months. Recent data from the New York Fed revealed that credit card balances escalated by nearly 5% to a record $1.1 trillion last quarter, while delinquencies and overall debt loads increased.
Despite the alarming trends, Weinberg does not predict a full-blown recession. He expects the Federal Reserve to significantly cut rates next year, which could alleviate some of the economic pressures.
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