Daily Commentary

MarketMinder’s View: Is the US economy on shaky ground? This article sweats high-income households allegedly showing signs of financial stress, “… raising the stakes for an economy that has come to rely more and more on consumer spending from top earners to power continued expansion.” The evidence includes one credit-scoring firm’s reporting that credit card and auto loan delinquencies from those making at least $150,000 are up over the past two years, the St. Louis Fed’s finding that late credit card payments in the highest-income zip codes are picking up and several anecdotes of seemingly well-off households who have had to cut back after things like a lost job. While we don’t dismiss anyone’s personal financial hardship, the macroeconomic implications here look limited. For one, household debt doesn’t look troubling. The article acknowledges, “Despite signs of rising stress, overall debt levels have come down in recent years relative to the size of the economy. The amount of household debt outstanding in the first quarter of 2025 was about 68% of gross domestic product, versus a record 98% in 2008.” (Note that 2008’s financial crisis wasn’t really about tapped-out consumers, either.) Also, the thesis here assumes high-income households dictate the economy’s fate—a misperception. Consumer spending, regardless of who is doing the purchasing, tends to be pretty stable even during tough economic times. Sure, some discretionary categories may suffer, but that is usually a response, not a symptom, of an economic downturn. Moreover, a lot of “high earners” based on national averages live in high-cost areas, forcing much more pinching and scrimping than you might think. For more, see our March commentary, “So Go the Top Earners, So Goes the Economy?”

MarketMinder’s View: If the latest trade developments have your head spinning, we empathize. After a July 9 can kick, President Donald Trump’s Liberation Day tariffs are set to resume Friday, and the President is pledging that the deadline “stands strong” and will not move (based on a Wednesday morning social media post). Ok, but yesterday, Treasury Secretary Scott Bessent said, “I would think that it’s not the end of the world if these snapback tariffs are on for anywhere from a few days to a few weeks, as long as the countries are moving forward and trying to negotiate in good faith.” Whether the deadline gets moved again or not, we think all things tariffs lack much negative surprise power at this point. Reality has turned out less severe than feared—a big reason global stocks keep rising. For more, see last week’s commentary, “This Week in Trade Deals,” to which we would add the EU deal and late Wednesday’s announcement of a South Korea deal lowering tariffs to 15%.

MarketMinder’s View: Our answer to the titular question: neither. Recent Japanese debt fears are overwrought but the overall amount is still high. However, this analysis makes a fair point about Japan’s public finances—the debt is shrinking, not rising, as the country runs a balanced budget. Why are the fiscs in better shape than so many appreciate? In part, inflation. “The so-called Abenomics stimulus, following the election of prime minister Shinzo Abe in 2012, began to change this, but in the end it was Covid and the associated global inflation that made the difference. Prices have risen faster than the Bank of Japan’s 2 per cent goal for the past three years; interest rates, a 0.2 per cent, are off the lower limit of zero; and wages are rising. This return to nominal growth in wages and prices has led to an immediate rise in revenues from income and consumption taxes, which is what has brought the public finances into balance.” Fisher Investments founder and Executive Chairman Ken Fisher goes into this topic more, but inflation reduces the relative burden of government debt. Combine that with Japanese debt being so cheap due to bizarre monetary policy, and little here looks worrisome on this front for the foreseeable future. This article also touches on what Japan “needs” to improve its public finances further (e.g., fiscal discipline and economic and structural reforms). While there may or may not be some wisdom there—especially on the reform front—we wouldn’t hold our breath given the current political gridlock. Still, with worries about Japan’s debt still front of mind, reality is bullishly better than many realize.