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. Â 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. Â 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 inÂ the US gradually draws toÂ its close,Â Trump‘s plans forÂ economic reform and fiscal stimulus are being heralded asÂ a way toÂ avoid a new recession. However, sky-high levels ofÂ household indebtedness might mar the scenario, jeopardizing sustainable economic growth inÂ the coming years, withÂ delinquent car and college loans having climbed dangerously high inÂ the last two years.
Both car loans and student debt have become more prominent inÂ the structure ofÂ US households’ indebtedness overÂ the post-Great Recession period, while the overall US economic recovery was fuelled byÂ debt issued underÂ the Obama administration. This puts additional downward pressure onÂ the productive forces ofÂ the US economy, and is likely toÂ complicate the new White House administration’s efforts toÂ put the economy back onÂ track.
This would not be such a big deal had US economic growth and gains inÂ disposable incomes been sustainable enough toÂ offset the risks associated withÂ rising household debt burden. However, withÂ the post-recession economic recovery being rather weak, and salaries and wages having stagnated forÂ two decades, US consumers can’t service their obligations asÂ efficiently asÂ ten years ago, when the mortgage meltdown unravelled due toÂ the rising number ofÂ home loan delinquencies.
In December 2016, total US household debt stood at $12.5 trln, its highest sinceÂ mid-2008, the NY Fed reported, while the share ofÂ car loans was atÂ its highest sinceÂ at least 2003, when records onÂ 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. Â 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. Â 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 JrÂ isÂ a writer for The Daily Economist, Secretsofthefed.com,Â Roguemoney.net, and Viral Liberty, and hostsÂ the popular youtube podcast on Mondays, Wednesdays and Fridays.Â Ken can alsoÂ be heard Wednesday afternoons giving an weekly economic report on theÂ Angel Clark radio show.