Americans now hold an incredible $4.1 trillion in consumer debt. This latest data shows that Americans are now back to having an insatiable appetite for spending beyond their means. Unlike mortgage debt, consumer debt is not building up any future equity here. The largest category of consumer debt is student loan debt. Even at the peak of the last debt bubble, consumer debt totaled roughly $2.5 trillion. While student debt makes up about $1.4 trillion of the consumer debt here, auto debt is above $1 trillion. We’ve also seen a large rise in subprime auto debt suggesting that people are borrowing beyond their means to consume. Delinquencies are also rising suggesting any tiny slip up in the overall economy and this credit bubble can burst too.
Consumer debt surging to record levels
Americans are now borrowing and spending at record levels. This would be fantastic if incomes were keeping up but many are trying to keep up with the Joneses by spending future income via consumer debt. This chart sums up the desire to spend:
Source: Federal Reserve
Showing signs of weakness we have over 10 percent of all student loan accounts being delinquent by 90 days or more. And this is the largest consumer debt segment. Auto debt delinquencies are also rising suggesting people are having a tough time paying their car loans.
Banks are more comfortable lending money now that we are 10 years passed the excess of 2007. The Great Recession officially ended in 2009 and while banks have had generous bailouts, it appears that American consumers are being bailed out via access to debt. If we take a tiny trip down memory lane, we will remember that solvency was the issue during the last credit bubble. People took on too much debt relative to their ability to pay. The amount of consumer debt being issued is troubling to say the least.
While auto debt and credit card debt can be discharged via bankruptcy, student debt cannot. That is very significant. Many younger Americans are being put into a new form of debt serfdom through going to college and taking out mini mortgages that they simply cannot pay back.
Here is one of many horror stories when it comes to student debt:
“My original debt from 1998 was $25,000. 8 years later I have a debt of $75,000. I am no banker or accountant, but I am assuming this will continue to triple every 8 years if I remain in poverty and thus in default. So am I correct that in 8 more years I may owe $225,000? That in 16 years I will owe $750,000; in 24 years, $2,250,000, and then at retirement time in 32 years I will owe $6,750,000? 6 Million plus? Haha. Now, of course, if this were any other form of debt that became this cancerous I could file for bankruptcy. Not for student loans though. At age 72 I may owe $20,250,000. Heaven forbid that I live to see my eighties. At age 88 I may owe $182,250,000.
I think we are just beginning to see how crazy this is going to get. If my math is correct, in ten years there are going to be a lot of impoverished people, people making less than $20,000 a year, who have these ludicrous million dollar debts.
My heart about exploded when I got the letter saying I owed $75,000. After I recovered, all I could do was laugh. It is so absurdly much that they might as well have told me that I owe a million bucks, and now, upon further reflection, it appears they will be telling me I owe them a million bucks in the not so distant future.
I wonder if people with unpayable student loan debt will due to accumulated stress, loss of work, and an inability to pay for medical needs in old age, have on average shorter lifespans than those who do not? This will make an interesting study in fifty years.”
So an original debt of $25,000 has ballooned to $75,000 in eight years. Why? Because the debt compounds with interest and charges are put upon charges. Of course if someone cannot pay, you see how comical the situation can get in a macabre sort of way. Does this even sound like a good situation to put young and older Americans into?
Consumer debt being over $4.1 trillion is troubling when student debt, auto loans, and credit cards are leading the way forward. Apparently we like repeating history and people may like to forget that at the root of the Great Recession was a giant credit bubble. – mybudget360
Please check back for new articles and updates at Commoditytrademantra.com
For More details on Trade & High Accuracy Trading Tips and ideas - Subscribe to our Trade Advisory Plans. : Moneyline