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Wall Street Is Engineering Economic Disaster for Profit — Again

Last Updated September 23, 2020 1:29 PM
W. E. Messamore
Last Updated September 23, 2020 1:29 PM
  • Wall Street expects big banks to post big profits on the interest from consumer credit balances soaring at unnerving record highs.
  • According to Federal Reserve data, consumer debt at the 25 biggest banks ballooned to $1.9 trillion last year, fueled by credit cards.
  • Is this the ‘macroprudence’ America was promised after the last financial crisis? Or reckless brinkmanship in the face of a looming recession?

The S&P 500 posted another record high Monday . Wall Street is giddy on the sugar rush from the U.S. China trade truce. Analysts expect to see profits driven by record consumer debt when the biggest banks on Wall Street divulge their fourth-quarter results .

Federal Reserve data show consumer loan balances at the top 25 banks reached an all-time record high of $1.9 trillion in December. Total consumer credit held by all lenders sits at a dismaying record high of $4.1 trillion .

federal reserve november consumer credit tweet

That’s despite strong employment  and record household income . American’s aren’t hard up. They’re over-leveraging the last decade of growth to live beyond their means.

While GDP has grown roughly 49%  over the years since the Great Recession ended in Q2 2009, total consumer credit outpaced it at roughly 64%.

Total credit card balances ballooned the most last year out of any category. They rose 16% in 2019. U.S. GDP is projected to have grown by 2.4% in 2019 .

A Consumer Credit Bubble If Recession Strikes

Americans are borrowing more than ever to finance new cars  and vacations they’re hoping they’ll be able to pay off later. Wall Street has thrived on the debt-funded spending spree, but consumer credit won’t be able to sustain this growth forever.

And if there’s a recession, this is a dangerous credit bubble. Mark Zandi, chief economist at Moody’s Analytics warns that recession “remains a serious threat.” 

He looks at slowing job growth with trepidation.

If the economy slows down any further, for whatever reason, he predicts a “self-reinforcing negative dynamic” will take hold. Unemployment will rise, consumer spending will fall, and businesses will put a freeze on new hiring.

Even more troubling, a dauntingly unanimous consensus in Deloitte’s latest CFO Signals Survey: 97% of CFOs say a recession has already started, or will begin in 2020 .

Is Wall Street Counting On Another Bailout?

Wall Street has never been more euphoric despite the precarious state of household finances. As the market extends a record run approaching its 11th year, the bulls are stopping just short of saying it could last forever.

On New Year’s Eve CNBC hyped:

Goldman Sachs is saying the economy is nearly recession-proof.

The actual quote from the Goldman Sachs economists cited in the piece  was “structurally less recession-prone,” not “recession-proof.” This is a truly precious, remarkably stark example of hearing what one wants to hear.

Pensions & Investments reported Monday that :

Analysts see no finish to bull market run.

This weekend, CNBC’s “Trading Nation” brought on an analyst to keep pumping Wall Street gains. She urged investors not to take profits from record-high stock valuations :

The worst thing that clients and investors can do with the market at current levels is pull the plug and go underweight equities. There’s time left on the clock. We still think there’s room for this market to move higher.

In a way she’s right. That might be the worst thing a client could do. It could trigger a stampede for the exits. So what is Wall Street’s exit strategy?

The economy is careening toward a recession cliff and Wall Street is stomping the gas pedal. According to one famed global financial strategist, the Federal Reserve is supplying the gas by expanding the money supply with massive liquidity injections.

2020 presidential candidates, pay attention. There’s a big boost in poll numbers awaiting the first ones to promise this to voters: When the inevitable recession hits, the Washington bailout will be for Main Street. Wall Street can eat this one.

Disclaimer: The opinions in this article do not represent investment or trading advice from CCN.com.