US Credit Reveals Consumer Collapse! Global Bank Warns: 50% Chance of US Recession

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The U.S. Economy’s Fragile Foundation

If there’s a single, ultimate indicator of the health of the U.S. economy, we might have found it today. The economy often appears to be a complex system, but at its core, one simple equation holds true: U.S. deficits prop up economic growth.

The Unsustainable Growth Model

Last year, the U.S. ran a deficit of 6.4% to generate just 2.3% GDP growth—meaning every dollar of government spending produced less than 50 cents in real economic progress. This is clearly unsustainable. So, what happens if we pull the plug and dramatically cut government spending? We risk collapsing the primary driver of growth.

Bessent’s Vision: A Controlled Landing

However, Scott Bessent remains confident that he can prevent an economic meltdown and orchestrate a smooth landing. His plan hinges on "reprivatizing" the economy by reducing government spending and scaling down excess public sector employment. At the same time, he aims to reinvigorate the banking sector and create new manufacturing jobs, allowing laid-off government workers to transition into private sector roles.

A Bold Promise of Disinflation and Growth

According to Bessent, this shift will lead to disinflation, making goods and services more affordable. Lower energy costs, deregulation, and increased private-sector employment will, in turn, drive down interest rates, easing financial burdens on mortgages, credit card debt, and auto loans.

The Oversimplified Solution

The way this plan is framed is almost comedic—like a performance review on The Apprentice. But in all seriousness, Bessent envisions a seamless economic transformation: government workers laid off today will supposedly start producing cars or semiconductors tomorrow, ultimately leading to an economic "promised land." The theory is that slowing inflation will allow interest rates to decline, easing pressure on the economy.

Interest Rates: The Key Lever

Notably, Bessent places significant emphasis on interest rates, a key factor that can make or break consumer spending. However, he overlooks a crucial element: the ongoing trade war, which drives up prices and crushes demand. Can his plan truly avoid a recession while achieving all these objectives?

Plummeting Consumer Confidence

The latest U.S. consumer confidence report paints a grim picture. It has plunged to its lowest level since early 2021. Economists expected a reading of 94, but the index fell by 7.2 points to below 93. This decline isn’t surprising—Americans have endured three years of high inflation under Biden, and they need relief. However, Trump's tariffs are set to push prices even higher, and consumers, caught off guard, are reacting with fear.

A Self-Fulfilling Prophecy?

Key economic indicators are all moving in the wrong direction, especially inflation expectations. When inflation expectations rise, consumers brace for impact by cutting spending—a phenomenon that can lead to a self-fulfilling prophecy.

Recession Odds Are Climbing

The odds of a U.S. recession are surging. In just one month, the probability jumped from 5.8% in February to 6.2% in March. While this number may seem low, it matters because severe cutbacks in spending could trigger the very downturn Bessent claims to be avoiding. Yes, inflation and interest rates might drop—but not due to a strong, resilient economy. Instead, it would stem from demand destruction, where consumers simply stop buying, forcing prices down.

Wall Street Sounds the Alarm

According to Deutsche Bank, the likelihood of a recession is approaching 50%, making it essentially a coin flip. Other institutions, such as JPMorgan, estimate the chances at 40%, while Goldman Sachs recently raised its recession probability by 5%. Are all these banks wrong, and Bessent right? That seems unlikely, given the overwhelming evidence of a rapidly slowing economy.

The Federal Reserve’s Dilemma

The Federal Reserve is also in a bind. It can't afford to cut rates due to the inflationary shock from the trade war. Trump insists on multiple rate cuts, but the Fed disagrees—Atlanta Fed projections now suggest only one cut this year. The culprit? The same trade war that fueled inflation in 2022 and 2023.

The Tariff War’s Hidden Impact

With tariffs set to drive prices even higher, manufacturers will have no choice but to increase prices by 25% or more, especially if China refuses to absorb the costs. This will further strain American consumers and businesses alike.

The Weakening Dollar: A New Risk

Another issue weighing on the U.S. economy is the weakening dollar. The currency’s strength has been declining since the start of the year. Given that the U.S. still relies heavily on imports, a weaker dollar means higher costs for importers, which will ultimately be passed on to consumers.

A Billion-Dollar Bet Against the Dollar

For the first time since October, speculators are holding nearly $1 billion in bets against the dollar—a sharp reversal from January, when $40 billion was betting on a stronger dollar. This shift signals mounting recession fears.

The Myth of American Exceptionalism

The belief in American economic exceptionalism has been shaken—ironically, by Donald Trump himself. His policies have alienated global investors, prompting them to dump the dollar. The consequences of this gamble remain to be seen, but one thing is clear: the margin for error is razor-thin.

US Consumers Face Spending Crisis

If U.S. trading partners continue to impose trade barriers and shift their commerce elsewhere, it will have severe consequences for the U.S. dollar as the world’s reserve currency. This could exacerbate the pain of rising prices and weaken the economy further.

The Shocking Reality of 'Buy Now, Pay Later' for Fast Food

If there’s one undeniable sign of a collapsing U.S. consumer economy, it’s the rapid rise of "Buy Now, Pay Later" (BNPL) services—not just for major purchases, but for fast food. DoorDash has now partnered with Klarna, allowing customers to order takeout and defer payments. This bizarre trend underscores just how dire financial conditions have become. The fact that people feel the need to take out a loan just to buy a burger or Taco Bell speaks volumes.

A Sign of Desperation: The Credit Apocalypse

The only reason someone would opt to "eat now, pay later" is if they can't even qualify for a credit card transaction. With bad credit, they can still use BNPL services to get food, revealing the extent of financial distress in America. The demand for these services is skyrocketing, as more people struggle to make ends meet. Companies are responding to this crisis, but at what cost?

The Harsh Reality: BNPL Destroys Consumer Finances

A recent Harris Poll survey confirms what many already suspected: BNPL encourages consumers to overspend, leaving them in worse financial shape over time. 28% of users reported falling behind on other credit obligations, meaning the risk of widespread loan defaults is rising sharply. This contradicts Trump's claims of a "strong economy"—the reality on the ground tells a very different story.

The Hidden Costs of Deferred Payments

Failure to pay BNPL installments results in late fees—Klarna, for instance, charges up to $20 per missed payment—and a significant hit to credit scores. This feeds into the broader conversation about inflation over the past three years. Many Americans are still struggling with rising costs, especially for essentials like groceries.

The True Cost of Inflation: A Personal Example

To illustrate the impact of inflation, consider a real example: a Walmart grocery order from two years ago, containing 45 items, cost $126 for an entire month’s worth of food. Today, the same order costs $414—more than four times as much. How can Bessent argue that the economy is strong when real purchasing power has collapsed? Either he knows something the public doesn’t, or everyday Americans are watching their budgets crumble.

The Middle Class Collapse and the Rise of the Wealthy Consumer

To understand the current economic landscape, it's crucial to recognize who is now driving consumer spending in the U.S. The middle class has been hollowed out, and consumption is now primarily led by the wealthy.

The Stock Market’s Dominance Over the Economy

Since 1996, the top 10% of earners—those making over $250,000 annually—have steadily increased their share of total consumer spending, rising from 35% to 50%. In contrast, the spending power of the remaining 90% has been steadily eroding. Inflation and tariffs disproportionately affect lower-income consumers, putting the economy in a precarious position.

Corporate Profits Under Pressure from Tariffs

With Trump’s trade war escalating, businesses are feeling the squeeze. Consumers are hesitant to spend, leading to downward pressure on corporate earnings. As a result, the stock market has begun to correct—a shift we haven’t seen in a long time.

The Looming Threat of a Reverse Wealth Effect

In China, consumer spending was heavily tied to real estate stability. In the U.S., consumption is closely linked to the stock market. If stock values decline significantly, even the top 10% will cut back their spending, sending shockwaves through the economy.

Stock Market Volatility and Investor Anxiety

According to UBS, the stock market bubble isn’t over yet. A lack of fiscal stimulus and government spending is rattling investors. While the S&P 500 has rebounded to 5,800 points, there’s a risk it could drop to 5,300—a 500-point decline, or another 10% down. Such a correction would have a severe psychological impact on investors, potentially triggering a spending freeze similar to China’s property collapse.

The U.S. Economy’s Dangerous Dependence on Equities

If you thought China’s consumption collapse was bad, the U.S. could be even worse. American households are deeply tied to the stock market through 401(k)s, mutual funds, and retirement plans. As a result, economic sentiment is now directly linked to stock performance.

The Wealth Gap and the Risk of Market Collapse

The U.S. stock market has become the playground of high-income earners, with total household stock ownership exceeding $45 trillion. However, over 90% of that wealth is concentrated within the top 20% of earners. These are the people driving consumer spending, and if the market crashes, they will feel the most pressure—leading to a sharp decline in economic activity.

A Bizarre Economic Paradox

Traditionally, economic growth drives stock prices. But today, stock prices dictate economic conditions. This reversal creates an unstable financial system, where the entire economy hinges on market performance.

The Government’s Indifference to the Market's Fate

Unlike previous administrations, the current U.S. government appears willing to let the stock market decline in order to reset the economy. Treasury officials have even downplayed recent market turmoil, calling it a "healthy correction."

The Risk of a Recession Amidst Economic Restructuring

Scott Bessent and his allies may be willing to trigger a recession to achieve their economic restructuring goals. Cutting federal spending to reduce national debt is already difficult—but attempting this while Trump escalates a trade war only worsens the challenge. This is one of the most dangerous economic gambles in modern history.

The Big Question: Can the U.S. Consumer Survive?

With a potential recession looming, tariffs driving up prices, and the stock market teetering, the key question remains: Can the U.S. consumer withstand the coming economic storm? The answer may determine the future of the entire economy.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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