Engaging debt spiral – Spillover to US market from record European Union Unemployment – US exports over $260 billion to Europe every year. Why is the EU crisis no longer in the US press?
It is hard to tell why the European Crisis fell out of favor in the US media. The EU is the largest economy in the world punching in over US$17 trillion a year in GDP. The idea that things have been saved is clearly not the case. Sticking your fingers deep in your ears is not a solution. More debt is put on top of more debt like multiple layers of icing on a rotten cake. A colleague brought up Greece and was talking as if the situation had been solved. The bailouts are merely a method of extending enough credit to continue servicing the current debt. In other words, they are insolvent. The same story circulated under new packaging. This is like having a $10,000 mortgage and making $2,000 a month with no savings. Then your uncle lends you $100,000 and that will carry you a few more months but then what? There is then a constant oceanic wave of bailouts. Spain and Greece are the most obvious cases but the overall EU now has reached a record high level of unemployment. Where do we go from here?
The Temple of Inflation – where does the typical Americans spend their money? A comparison between 1986 and today.
For most people that I know the mortgage and rent payment will eat up the largest portion of a monthly budget. This is the case for the vast majority of Americans as well. Housing is the biggest line item expense on the monthly budget. For the most part people tend to think that the Federal Reserve is fully focused on home owners but the reality is this is only an afterthought. The core focus of the Fed is to inflate the debt of the banks (massive amount) and the government away ($16 trillion and growing). Even a tiny bit of inflation is painful if household incomes are not going up. Household incomes adjusting for inflation are back to levels last seen in the mid-1990s. With the push for lower rates, rents have been going up consuming a larger part of a household’s budget. Even if overall inflation looks stable the big jumps in rents, health care costs, tuition, and food are hitting households very hard.
Deleveraging on good debt and ramping up on consumption debt – growth in auto loan debt, collection amounts, and revolving debt.
The grand US household deleveraging event continues as debt is paid off or more likely, wiped away via foreclosures and bankruptcies. What is hidden in the deleveraging trend is the growth of debt in certain spending categories. Keep in mind that not all debt is bad. For multiple decades the US had a cautious lending apparatus in housing with sizeable down payment requirements. With this came stable home prices and real equity build up for homeowners. However, in the 2000s the housing market was transformed into a casino and subsequently popped. The reason the deleveraging is still occurring is you have many households seeing mortgage debt wiped off the balance sheet and many paying it down. By far this is the biggest debt carried. However, we are seeing some segments like student debt explode and also revolving debt and auto loans picking back up. Deleveraging might be occurring in mortgage debt but re-leveraging in other forms of debt is also occurring.
Is College Worth the Price and Debt? Private student loans make up $150 billion of the $1 trillion in outstanding student debt. Private student loans grow hand and hand with for-profit institution growth.
Few will ever argue that getting an education is a worthy goal. College is seen as the gateway to a better life and mobility into the middle class. The middle class has been shrinking while the cost of attending college has skyrocketed. The cost to attend college has far outstripped any sensible economic measure and has climbed even faster than housing values during the peak days of the bubble. Is college worth the current cost? Many articles come out showing that college graduates earn more than non-college graduates. Yet this data rarely digs deep into the figures. What colleges did these graduates go to since the US now has over 4,000 institutions? How old are these graduates? These figures look at lifetime earnings so we are looking at a time when the US had a more vibrant economy and going to college was affordable. Let us examine if college is worth the current price.