by Dave Allen, The International Forecaster:
Americans’ credit cards got a sweaty workout in February, as monthly consumer debt rose the highest in over a decade.
Matt Phillips believes it could mean that climbing inflation coupled with households’ diminished savings are forcing more people to use plastic.
The Fed’s monthly consumer credit report for February came out yesterday, showing that consumer debt — excluding mortgage debt — jumped by $41.8 billion, or 11.3%.
Revolving credit — typically credit cards — rose by a seasonally adjusted annual rate of 21%, up from 4% the prior month. Nonrevolving credit, which includes auto and student loans, was up 8.4%.
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With pandemic stimulus payments now a fading memory — and families’ record savings cushion a thing of the past — it seems a no-brainer that out of control inflation has us back to running up our personal debt.
And This Is Before the Big Gas Spike
Pain at the pump is making people crazy. But the recent price surge for industrial fuels like diesel and jet fuel have so far surpassed the rise in price for base products such as gas for autos.
The jump in prices for those byproducts, known as distillates, is acting as more subtle inflationary force, pushing up prices on a wide range of other goods — for example, anything that’s trucked — and services like air travel.
Phillips says the difference in prices among these fuels illustrates the economic concept of “elasticity,” or how sensitive demand is to changing prices.
Demand for gas at the pump is a lot more elastic than distillate demand, because consumers can often decide to drive less if gas prices get too high, especially with more people working from home these days.
Industrial fuel like diesel, however, is less sensitive to climbing costs, because those costs can often be passed along to a customer elsewhere (e.g., an airline passenger).
The EU Is Another Story…for Now
Will the European Union do the unthinkable? Will it cut off imports of Russian oil and gas, which have been flowing to the West for decades through rain, sleet, snow — and war.
No one knows what would happen — economically and geopolitically — if the EU is cut off from its supply.
Academics like Antoine Halff at Columbia University says, “It’s not something that’s been in the models because it was never considered an option.”
Although specific predictions are hard to nail down, Emily Peck says there’s consensus among economists that a complete energy embargo would throw the EU into recession and have geopolitical consequences.
“Regionally devastating and globally impactful,” write the authors of a recent white paper that lays out options for handling an energy cut-off. Germany, which is deeply dependent on Russian energy, would likely get hit the hardest.
German GDP could fall somewhere between 0.5% and 3%, according to a paper published last year by German economists. Already the pandemic has caused a 4.5% GDP decline in the country.
Without Russian energy, many European companies could be forced to shutter production. And citizens could also be forced to ration heat and electricity ala WWII.
Yesterday, the EU announced that it would ban Russian coal, and that’s fueling speculation, no pun intended, about the potential of a total energy ban. A few countries are pushing for oil to be next.
Each day, the eurozone is paying over a billion dollars’ worth of imported Russian energy. And the EU top diplomat Josep Borell says “that’s…a source of income that’s used to finance the war.”
Experts say that going cold turkey on coal and oil is relatively doable because they can be imported from other sources.
Natural gas, though, requires different infrastructure — pipeline, transport and storage — that can’t quickly be built. Germany, for example, has only begun to built ports for liquified natural gas.
Lithuania announced a total ban on Russian energy earlier this week. Other countries may follow — but not right away. The EU has said it will wean itself off Russian gas before 2030.
That’s a long time to cut off Putin’s funding for his delusionary plans. It’s time for our brightest minds to figure this one out…fast!
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