Go Ahead, Pile on the Debt! Have We Reached a “Tipping Point”?

Perhaps you have read the book by Malcolm Gladwell called The Tipping Point.  If you have not, it is worth a read.  There is a lot in it despite being a pretty short read.  In summary, Gladwell points out a number of phenomena that can be traced back to a single, often simple, cause which in turn caused a much larger, and often very drastic, change.  I am oversimplifying a bit, but watching world events, financial market behaviors, and ongoing trade wars and political conflicts, I wonder if we are about to reach a significant “Tipping Point” for the American economy and perhaps the world?

I know that is a broad suggestion, and one that is often associated with being a ‘Debbie Downer’ these days.  Yes, the economy continues to be robust.  Employment is at all-time highs.  New job creation continues apace with wages increasing.  Consumer sentiment is strong and the economy growing. 

Yet I can’t get the enormous amount of consumer debt off my mind.  It hangs like a storm cloud over an otherwise pretty rosy financial picture.  As we all know, though, roses have thorns and sometimes that light we see at the end of the tunnel turns out to be a freight train!

Once again, we find ourselves at record levels of consumer debt.  The New York Federal Reserve just published its report for the second quarter of 2019, and it continues to show that we still seem to have no end to our appetite for personal debt accumulation (read the press release here). 

No surprise, we set yet another record!

Some highlights of this quarter’s report are:

  • The headline from the Fed is “Total Household Debt Climbs for 20th Straight Quarter…”
  • Household debt now stands at a whopping $13.86 trillion.
  • This is a $192 billion increase from the first quarter.
  • The report points out that “Balances have been steadily rising for five years and in aggregate are now $1.2 trillion higher, in nominal terms, than the previous peak (2008Q3) of $12.68 trillion. Overall household debt is now 24.3% above the 2013Q2 trough.”
  • Mortgage related debt stood at $9.4 trillion, a $162 billion increase.
  • Non-housing debt increased by $37 billion in the second quarter
    • New auto loans totaled $155 billion, a $17 billion increase   
    • Credit card balances totaled $868 billion, a $20 billion increase
    • Some good news was that there was an offsetting $8 billion decline in student loan debt.
  • Credit card balances in the 90+ day delinquency range rose to 5.2% from 5.0%.

Unfortunately, an increasingly important part of this debt is from so called ‘shadow banking’ institutions and should cause concern as well.  Consumers that may otherwise not qualify for credit from traditional sources often turn to these institutions to finance their purchases.  That does not help stabilize the debt picture, however.   

Granted, as long as employment stays strong and wages continue to rise consumers can continue to finance their debts.  

Most recently, however, the bond market began to flash warning signals of a potential recession.  Of course, that can force companies to tighten their belts, cause static or negative job and wage growth, which in turn can cause significant financial turmoil.  With little savings, or other financial cushions, to protect consumers during hard times (which surely will come) the “Tipping Point” represented by personal debt will continue to shadow us for a long time.

What can you do now to protect your business?  First, as we have previously suggested, make sure to review your credit policies and stay on top of your receivables.  Make sure that your customer records are as complete and accurate as possible. Finally, make sure to turn your delinquents over as soon as possible for prompt and efficient collections action.  We are here to help.  Let the professionals at A. Alliance show you how. 

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.

Terrorism by Technology: “What Hath God Wrought?”

“What Hath God Wrought?”  That message was sent to Samuel F.B. Morse in 1844 by his assistant using his “Morse” code, and thus inaugurating the new, state of the art, Baltimore to Washington telegraph system. I wonder if he is spinning about in his grave realizing the understatement that message represents today?

What strikes me is how even then how quickly people began to find ways to ‘hack’ this new system.  That is what we would call it today I would think.

When taking a longer view, I can’t think of an example where a development in the storage or transmission of information has not been just as quickly followed by new methods to intercept it, steal it, profit from it, or acquire it for other uses which it was not intended. 

The advent of more sophisticated technology has simply accelerated not only the flow of data but the sophistication of those bent on intercepting it.

My friend and colleague Lisa Brammer wrote a blog for us a few weeks ago regarding her personal experience with the Equifax data hack.  To me it is staggering that more than half the population of the United States had their personal information stolen and it took weeks before the theft was reported.  Her experience underlines how ill prepared so many companies are to not only deal with a breach but then to take appropriate responsibility for the consequences.

Truly, though, it is not what God wrought but what we have indeed wrought upon ourselves.

A case in point in my own experience tells a similar tale.  Just last week I received an email from the manufacturer of our home router telling me that a critical security update for the router firmware was available.  The message conveyed a great sense of urgency to download the firmware update.

Now, I am fully aware that one of the oldest tricks hackers use is fake email disguised to look like it is from a trusted provider.  In my head I know better, but I reacted emotionally and blindly followed the instructions to log into my router to get the update.   Instead I got nothing.  The page said I was not even connected to the internet, but of course I was.

I set it aside for a bit, but then it hit me I may have been directed to a fake site which then captured the login information for my router.  I checked the e mail again, its links, and then the manufacturers website and ultimately found it was legit.

Even then, when I did get it to download, it did not install correctly.  It promptly locked up my router, disconnected the internet and caused general panic. 

What were they thinking in communicating such an important update in this way?  What to do now? 

I took a chance and rebooted the router and—voila!—it magically worked.  The firmware was installed and all was good, heart palpitations aside.  I suspect I will find another vendor when I need to replace this router.  Why they used this method to communicate such important information is beyond me. 

So, what is the point here?

First, the fact is that despite our best attempts to thwart this insidious menace, theft will be always be with us regardless of advances in security and new technologies.  New threats, new methods of attack, will come at us all every day. 

Second, to protect ourselves we need to be ever vigilant, both in our personal and professional dealings with internet and data security.

Finally, know that we are humans too. We have personally felt the pain of data breaches as much as the next person.  We know our valued clients have placed their trust in us.  We endeavor to stay one step ahead of the next threat and employ the latest, state of the art technology to keep our data safe. We are proud to say that we have yet to experience a successful breach, even though, like just about every company, we frequently come under attack.  Knowing how critical data security is to our own lives, we apply that tenacity to ensuring our clients are protected as well. 

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 12 years.