According to Yahoo News, echoing concerns raised by Tesla's Elon Musk and 'The Big Short' investor Michael Burry, veteran economist Carl Weinberg has warned that American households have accumulated historic amounts of debt, which could negatively impact the economy. Weinberg stated that consumers are realizing they are financing their spending by increasing their credit card debt, and the interest on those credit cards is currently out of control. This could lead to a reduction in consumer spending as we enter the new year, according to the chief economist at High Frequency Economics.
Musk and Burry have previously expressed similar concerns, noting that many people are living paycheck to paycheck with high levels of debt and credit card payments reaching extremely punishing levels. They predict that this will inevitably lead to a spending slowdown and potentially a recession. Other financial experts, such as Citadel's Ken Griffin, bond billionaires Bill Gross and Jeff Gundlach, JPMorgan's Bob Michele and Mike Wilson, and economists David Rosenberg and Stephanie Pomboy, have also raised similar concerns.
Weinberg believes that the current situation is due to a combination of brutal inflation and surging borrowing costs over the past 18 months. The annualized pace of price growth reached a 40-year high of over 9% last summer and has remained close to double the Federal Reserve's target rate of 2% in recent months. The central bank has increased interest rates from nearly zero to above 5% to combat inflation, which has significantly raised the amount Americans pay monthly for mortgages, car loans, credit cards, and other debts.
Weinberg expects a pullback in household spending to cause an economic slowdown but not a full-blown recession. He also anticipates that inflation will return to normal levels soon, leading the Fed to significantly cut rates next year.