Americans owe more on credit cards than Pakistan's GDP.

Firing into Wednesday!

Hello, Curse and Coffee friends,

Today, we look at the USA’s K-shaped economy.

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Pakistan has more than 250 million people and an economy worth $410 billion.

Americans owe three times that on credit cards. Guess which end of the income ladder is drowning.

The take: The New York Fed's own researchers now call this split "K-shaped." Rich households spend from assets. Poor ones borrow from next month.

What happened: The Fed released its Q4 2025 Household Debt and Credit Report on Tuesday, showing credit card balances hit $1.28 trillion — up $44 billion in one quarter, 5.5% year on year.

Why it matters: Borrowers under 39 are defaulting at nearly double the national rate, and 55% of consumers now carry balances just to cover groceries and fuel.

What to watch: The delayed January jobs report drops today. Moody's chief economist Mark Zandi says the forecast is "zero." Benchmark revisions — the government recounting last year's job numbers — could wipe out most of 2025's reported gains. If the labour market is weaker than we've been told, the pressure shifts to the Fed: cut rates again and risk inflation, or hold and watch the bottom of the K snap.

The average card APR sits around 21%. New cards? Nearly 24%. The Fed cut rates three times in late 2025. Somehow, your minimum payment missed the memo.

[Analysis] US Bank Economics Research Group, "The K-economy in 2026: Same story, new amplifiers," January 2026

Background: The term "K-shaped economy" took hold during the pandemic, when higher-income households rode the wave of remote work and rising asset prices, while lower-wage workers got hammered. The gap briefly narrowed in 2020–2021 thanks to stimulus cheques, then widened right back. The top 10% of US households now account for nearly half of all consumer spending.

Key quote: Fed Chair Jerome Powell acknowledged there's "a lot of anecdotal data" showing "consumers at the lower end are struggling" while at the top, "people are spending."

Strategic read: This data lands hours before a jobs report that could confirm the labour market has been weaker than anyone officially admitted. Benchmark revisions could rewrite most of 2025's gains. If that happens, the comfortable narrative about a "resilient consumer" starts to crack at the bottom first.

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So how did we get here?

Wealthier households own homes, hold index funds, and barely notice rate changes on a card they pay off monthly.

Lower-income households burned through pandemic savings by mid-2023, then bridged the gap with plastic at 21–24% interest.

Each missed payment makes the next one harder.

12.7% of all credit card debt is now 90 or more days past due — and it's been rising since late 2022.

Meanwhile, JPMorgan's CFO said last month he saw no signs of deterioration. PNC's chief called consumer health a "tailwind."

Both things are true.

The K-shape has been widening for years.

What's new: the Fed's own data made it impossible to ignore.

Total household debt hit $18.8 trillion last quarter. Spending holds up overall. GDP looks fine. But strip out the wealthiest 10% and those numbers tell a different story.

We don't yet know whether today's jobs report confirms the worst-case scenario (but the signals are ugly).

Pro: Overall missed-payment rates have stabilised. Card defaults dipped slightly from last year. Banks have enough cash on hand to absorb this level of stress.

Con: "Stable" at the highest levels in years is not recovery — it means the pain became permanent. Younger and lower-income borrowers aren't bouncing back. They're treading water at 24% interest, and nobody is throwing a rope.

Our read: The economy is strong enough at the top to keep the averages looking healthy. That holds exactly as long as the jobs market does.

NY Fed Quarterly Report on Household Debt and Credit — Q4 2025 (full data)

Page 24 onwards breaks down missed payments by age. Under-39s are defaulting on credit cards at nearly double the national rate. One chart, two economies.

The top 10% of households account for nearly half of US spending. — US Bank / Fed data, 2025

CNBC: The delayed January jobs report — what to expect — Moody's says the forecast is "zero." Benchmark revisions could rewrite 2025. Read before 8:30 am.

CNN: The K-shaped economy reigned in 2025. It's not going away — CPG companies are cutting prices because people can't afford their products. That's not prices falling because things are good. People are broke.

US Bank: The K-economy in 2026 — How AI, high rates, and asset concentration are pulling the K apart. Drops the inequality data most outlets skip.

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