Tag Archives: Consumer debt

The global debt problem, by Alasdair Macleod

Posted on April 9, 2021 | Leave a comment

If you’re only going to read two articles from SLL tonight, read this one and the next one. There’s only one inevitable “solution” to the global debt problem: a financial system crash and burn. From Alasdair Macleod at goldmoney.com:

It has been recently estimated that global debts stand at $284 trillion equivalent, representing 355% of global GDP. Estimates such as these must be treated with caution, and they probably underestimate financial sector debt. Furthermore, no allowance in these figures is made for OTC derivatives, which according to the Bank for International Settlements have a gross value of $15.48 quadrillion(!), netting out at $609 trillion.

This article comments on the different debt sectors: government, finance, non-financial corporate and consumer debt. It finds the dangers of excessive corporate debt have had the least attention, and that systemic risk in commercial banks is grossly underestimated.

The rapid growth of emerging market corporate debt is a recipe for a repeat of the Asian crisis in the late-1990s.

Ultimately, the whole debt burden will fall on government shoulders in their threefold attempt to protect the banks, stop a recession and to continue puffing up a wealth effect by inflating increasing amounts of currency into financial markets.

The trigger to end the debt crisis is almost certainly rising bond yields.

Introduction

Times of monetary expansion generate a shift in wealth from bank depositors to borrowers. Given that this year is the fortieth anniversary of the Nixon shock, when the world’s currencies finally came out as fiat, it is hardly surprising that each successive crisis led to the easier path of increasing debt instead of letting failing businesses and banks go to the wall. Kicking the can down the road has been the way to deal with every economic or financial blip. After all, it is argued, inflation reduces debt obligations over time.

Maybe, but it increases the net present value of future obligations to the ultimate destruction of welfare-driven states. This is why, if for no other reason, kicking cans down the road just ends up at some point with a pile of cans that can no longer be kicked. But politicians aware of mounting obligations and still doing the can-kicking believe that will be their successors’ problem, and you never know, something might turn up. After all, optimists argue, we survived higher levels of debt following the Second World War.

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No Payment, No Problem: Bizarre New World of Consumer Debt, by Wolf Richter

Posted on August 8, 2020 | 1 comment

Debtors are not making payments on their loans, but creditors get to keep such loans on their books at full value and to pretend the payments are being. It’s Extend and Pretend all over again. From Wolf Richter at wolfstreet.com:

All kinds of weird records are being broken. But it’s scheduled to expire, and then what?

The New York Fed released a doozie of a household credit report. It summarized what individual lenders have been reporting about their own practices: If you can’t make the payments on your mortgage, auto loan, credit card debt, or student loan, just ask for a deferral or forbearance, and you won’t have to make the payments, and the loan won’t count as delinquent if it wasn’t delinquent before. And even if it was delinquent before, you can “cure” a delinquency by getting the loan deferred and modified. No payment, no problem.

Nearly all student loans go into forbearance, delinquencies plunge.

Student loan borrowers were automatically rolled into forbearance under the CARES Act, and even though many students had stopped making payments, delinquency rates plunged because the Department of Education had decided to report as “current” all those loans that are in forbearance, even if they were delinquent. Yup, according to New York Fed data, the delinquency rate of student loan borrowers, though many had stopped making payments, plunged from 10.75% in Q1, to 6.97% in Q2, the lowest since 2007:

Student loan forbearance is available until September 30, and interest is waived until then, instead of being added to the loan. In a blog post, the New York Fed said that 88% of the student-loan borrowers, including private-loan borrowers and  Federal Family Education Loan borrowers, had a “scheduled payment of $0,” meaning that at least 88% of the student loans were in some form of forbearance. Until September 30. And then what?

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Posted in Banking, Business, Collapse, Debt, Economy, Government

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Thirteen Reckonings Hanging in the Balance, by MN Gordon

Posted on September 9, 2018 | Leave a comment

The thirteen reckonings are essentially thirteen cases of you can’t have your cake and eat it, too. From MN Gordon at economicprism.com:

The NASDAQ slipped below 8,000 this week.  But you can table your reservations.  The record bull market in U.S. stocks is still on.

With a little imagination, and the assistance of crude chart projections, DOW 40,000 could be eclipsed by the end of the decade.  Remember, anything and everything’s possible with enough fake money.

Still, we consider DOW 40,000 to be about as probable as having a dinosaur step on our car as we drive to work today.  More than likely, a return to DOW 10,000 will first grace the front page of the Wall Street Journal.

In the interim, while still in the delight of this “permanently high plateau,” we’ll turn our attention to another equally suspect record that’s presently unfolding with imperfect precision.  If you haven’t noticed, the current economic expansion’s approaching its own record duration.  At 111 months and counting, this economic expansion is closing in on the post-World War II record of 120 consecutive months of growth that occurred between March 1991 and March 2001. Continue reading →

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The State of the American Debt Slaves, by Wolf Richter

Posted on February 8, 2018 | Leave a comment

How indebted are Americans? From Wolf Richter at wolfstreet.com:

It was one gigantic party. But wait…

Total consumer credit rose 5.4% in the fourth quarter, year over year, to a record $3.84 trillion not seasonally adjusted, according to the Federal Reserve. This includes credit-card debt, auto loans, and student loans, but not mortgage-related debt. December had been somewhat of a disappointment for those that want consumers to drown in debt, but the prior months, starting in Q4 2016, had seen blistering surges of consumer debt.

Think what you will of the election – consumers celebrated it or bemoaned it the American way: by piling on debt.

The chart below shows the progression of consumer debt since 2006 (not seasonally adjusted). Note the slight dip after the Financial Crisis, as consumers deleveraged – with much of the deleveraging being accomplished by defaulting on those debts. But it didn’t last long. And consumer debt has surged since. It’s now 45% higher than it had been in Q4 2008. Food for thought: Over the period, the consumer price index increased 17.5%:

Credit card debt and other revolving credit in Q4 rose 6% year-over-year to $1.027 trillion, a blistering pace, but it was down from the 9.2% surge in Q3, the nearly 10% surge in Q2, and the dizzying 12% surge in Q1. So the growth of credit card debt in Q4 was somewhat of a disappointment for those wanting to see consumers drown in expensive debt.

The chart below shows the leap of the past four quarters over prior years. This pushed credit card debt in Q3 and Q4 finally over the prior record set in Q4 2008 ($1.004 trillion), before it came tumbling down via said “deleveraging.”

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Total Government And Personal Debt In The U.S. Has Hit 41 Trillion Dollars ($329,961.34 Per Household), by Michael Snyder

Posted on July 28, 2017 | 1 comment

Got a spare $329,000? Probably not, but that’s each person’s share of US government and personal debt. From Michael Snyder at theeconomicollapseblog.com:

We are living in the greatest debt bubble in the history of the world.  In 1980, total government and personal debt in the United States was just over the 3 trillion dollar mark, but today it has surpassed 41 trillion dollars.  That means that it has increased by almost 14 times since Ronald Reagan was first elected president.  I am searching for words to describe how completely and utterly insane this is, but I am coming up empty.  We are slowly but surely committing national suicide, and yet most Americans don’t even understand what is happening.

According to 720 Global, total government debt plus total personal debt in the United States was just over 3 trillion dollars in 1980.  That broke down to $38,552 per household, and that figure represented 79 percent of median household income at the time.

Today, total government debt plus total personal debt in the United States has blown past the 41 trillion dollar mark.  When you break that down, it comes to $329,961.34 per household, and that figure represents 584 percent of median household income.

If anyone can make a good argument that we are not in very serious debt trouble, I would love to hear it.

And remember, the figures above don’t even include corporate debt.  They only include government debt on the federal, state and local levels, and all forms of personal debt.

So do you have $329,961.34 ready to pay your share of the debt that we have accumulated?

Nobody that I know could write that kind of a check.  The truth is that as a nation we are flat broke.  The only way that the game can keep going is for all of us to borrow increasingly larger sums of money, but of course that is not sustainable by any definition.

Eventually we are going to slam into a wall and the game will be over.

One of my pet peeves is the national debt.  Our politicians spend money in some of the most ridiculous ways imaginable, and yet no matter how much we complain about it nothing ever seems to change.

To continue reading: Total Government And Personal Debt In The U.S. Has Hit 41 Trillion Dollars ($329,961.34 Per Household)

 

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Retailing Is Bad And About To Get Worse, by Dave Kranzler

Posted on February 28, 2017 | Leave a comment

Mounting bankruptcies indicate financial stress is increasing, which means that retailers are suffering. From David Kranzler on a guest post at theburningplatform.com:

Americans are filing for bankruptcy at the fastest rate in several years. In January 2017, 55,421 individuals filed bankruptcy. That’s a 5.4% increase over January 2016. In December 2016, 4.5% more individual bankruptcies were filed than in December 2015. It’s the first time in 7 years that personal bankruptcies have risen in successive months on a year over year basis.

Also notable, in 2016 the number of U.S. Corporate bankruptcies jumped by 26% over 2015. U.S. Corporations have issued $9.5 trillion in bonds. That’s 61% more than they borrowed in the eight years leading up to the 2008 de facto financial system collapse (aka “the great financial crisis”).

The Financial Times reported that over 1 million U.S. consumers – prime and subprime – were behind on their car loans and that the overall delinquency rate had reached its highest level since 2009. The FT also stated that “lending to consumers with weak credit scores has been one of the fastest growing parts of the [banking] industry.” It’s starting to smell like early 2008 out there.

This is information and data that you will not hear on any of the “Bubblevision” financial “news” programs or read in the mainstream financial media. It’s also information that is not being factored at all by stock prices.

Americans are bulging from the eyeballs with mortgage, auto, credit card and student loan debt. The amount of outstanding auto debt hits a new record every month. Of the $1.2 trillion in auto loans outstanding, over 30% is considered subprime. In fact, I would bet good money that the number is closer to 40%, as the same type of non-documentation loans that infected the mortgage market in mid-2000’s has invaded the auto loan market. It was recently disclosed that the 61+ day delinquency rate on General Motors’ securitized subprime loans has soared to levels not seen since 2009.

To continue reading; Retailing Is Bad And About To Get Worse, by Dave Kranzler

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This is How Consumers Turn into Debt Slaves, by Wolf Richter

Posted on November 8, 2016 | 1 comment

Americans go deeper in hock. From Wolf Richter at wolfstreet.com:

The Fed likes the word “credit.” Sounds less onerous than “debt.”

Consumer debt rose by $19.3 billion in September to $3.71 trillion, another record in a five-year series of records, the Federal Reserve’s Board of Governors reported on Monday. Consumer debt is up 6% from a year ago, at a time when wages are barely creeping up and when consumer spending rose only 2.4% over the same period.

This follows the elegant principle of borrowing ever more to produce smaller and smaller gains in spending and economic growth. Which is a highly sustainable economic model with enormous future potential, according to the Fed.

Consumer debt – the Fed uses “consumer credit,” which is the same thing but sounds a lot less onerous – includes student loans, auto loans, and revolving credit, such as credit cards and lines of credit. But it does not include mortgages. And that borrowing binge looks like this:

Diving into the components, so to speak: outstanding balances of new and used vehicle loans and leases jumped by $22.6 billion from Q2 to $1.098 trillion, another record in an uninterrupted four-year series of records.

Auto loans have soared 38% from Q3 2012, the time when they regained the glory levels of the Greenspan bubble before the Financial Crisis:

Auto loan balances have soared because people bought more cars. New car sales hit an all-time record last year, though they’ve started to flatten out or decline in recent months. The balances have also been rising because loan terms are getting stretched, and because the balances on individual loans have been getting bigger as cars got more expensive and loan-to-value ratios rose:

Then to the next-generation debt slaves, many of whom might not even know yet what that term means since they haven’t started to make payments on it.

Total student loans, owned by the US government and by private-sector lenders, were $1.396 trillion at the end of September. The portion owned by private-sector lenders fell during the third quarter by $4.8 billion to $357.6 billion, as they’re pulling back from this business.

But student loans owned by the government jumped by $14.2 billion in September alone, and by $37.5 billion in Q3, to a new record of $1.039 trillion. So here’s what’s coming at these hapless debtors:

Credit cards are the most expensive way for consumers to go into hock. Interest rates deep into the double digits are not uncommon. There are fees out the wazoo for people who drop the ball. In return, banks borrow from savers at interest rates that are suspiciously close to zero.

Credit card debt is the biggest money maker for banks. If folks don’t pay off their balances, it’s a rip-off. It hits the financially weaker people and those with already some credit problems the worst. And the more urgently they need to borrow (to put food on the table, for example), the more money they’re going to pay in interest and fees. Banks know when they have a consumer by the balls.

But you can’t blame the banks. Banks are not forcing consumers to use these credit cards. During the Financial Crisis, consumers got burned, and they decided to get out of credit-card debt one way or the other, with a lot of this debt defaulting. And that’s when banks got burned.

To continue reading: This is How Consumers Turn into Debt Slaves

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