Consumer debt levels equaling or surpassing that of 2008 just prior to financial crash
When the housing bubble burst back in 2007, many Americans had not only been induced to purchase homes that were beyond their means to pay using sub-prime borrowing, but they also had borrowed against the rising equity in those homes as the housing market reached its apex. ¬†And the subsequent crash meant that millions of Americans would end up losing these homes, and have to carry a massive debt load into what would soon become the Great Recession.
Unfortunately however, many Americans did not learn from the mistakes of a decade ago. ¬†And with the false paradigm of ‘economic recovery’ being coupled with former President Barack Obama’s push to get individuals borrowing cheap money for college, real estate, and even new automobiles, the allure of cheap credit made any resolutions to pay down debt following the financial crisis a forgotten promise.
And now nine years later, these same Americans are back where they began, and in some cases accumulating more debt than the population held just prior to the collapse.
As the current economic cycle in¬†the US gradually draws to¬†its close,¬†Trump‘s plans for¬†economic reform and fiscal stimulus are being heralded as¬†a way to¬†avoid a new recession. However, sky-high levels of¬†household indebtedness might mar the scenario, jeopardizing sustainable economic growth in¬†the coming years, with¬†delinquent car and college loans having climbed dangerously high in¬†the last two years.
Both car loans and student debt have become more prominent in¬†the structure of¬†US households’ indebtedness over¬†the post-Great Recession period, while the overall US economic recovery was fuelled by¬†debt issued under¬†the Obama administration. This puts additional downward pressure on¬†the productive forces of¬†the US economy, and is likely to¬†complicate the new White House administration’s efforts to¬†put the economy back on¬†track.
This would not be such a big deal had US economic growth and gains in¬†disposable incomes been sustainable enough to¬†offset the risks associated with¬†rising household debt burden. However, with¬†the post-recession economic recovery being rather weak, and salaries and wages having stagnated for¬†two decades, US consumers can’t service their obligations as¬†efficiently as¬†ten years ago, when the mortgage meltdown unravelled due to¬†the rising number of¬†home loan delinquencies.
In December 2016, total US household debt stood at $12.5 trln, its highest since¬†mid-2008, the NY Fed reported, while the share of¬†car loans was at¬†its highest since¬†at least 2003, when records on¬†this parameter were first taken. – Sputnik News
Unless President Trump can succeed in his goal to bring back jobs and industry to the American shores, the economy still relies heavily on consumer spending to provide economic growth in today’s consumer oriented model. ¬†And it is because of the fact that consumers are tapped out that led to Barack Obama being the only President in American history never to have a single year with at least a 3% rise in GDP.
They say you can only get so much blood from a turnip, and an economy that relies too much on one single sector is destined to inevitably fail, and retract into recession. ¬†And it is only because of the manipulated data reports that add meaningless variables such as ‘double seasonal adjustments’ that have allowed the economy to have shown any positive growth at all since 2009.
Kenneth Schortgen Jr¬†is¬†a writer for The Daily Economist, Secretsofthefed.com,¬†Roguemoney.net, and Viral Liberty, and hosts¬†the popular youtube podcast on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.