Depreciating cars and expensive diplomas fueled by easy debt: 95 percent of consumer debt growth in past 12 months from cars and student loans.
New data from the Federal Reserve continues to highlight a reemergence of debt based consumer spending. Americans are largely buying stuff they can’t afford with money they don’t have. The Fed’s consumer credit report highlights a troubling trend. Over the last 12 months 95 percent of all consumer debt growth has come from people buying cars and young Americans going deep into debt to pursue a college education. A car quickly loses its value once it drives off the lot and many college degrees are massively over valued only being supported by easy financing. This is a disturbing trend, even more troubling than the last debt fueled bubble. One can argue with housing that at least people are getting an asset that generally rises with inflation. But a car? A for-profit degree? The debt juice is now flowing once again.
Top 10 percent of US households control nearly 75 percent of all wealth – Average Americans pretend to be temporarily embarrassed millionaires by going further into debt.
We currently exist in a land of financial contradictions. US household incomes adjusting for inflation are back to levels last seen in the late 1980s. However, holiday spending is going strongly largely by people going into big debt. Many are going to be paying for the holiday season of 2013 deep into years to come. More troubling than spending via debt is the record level of wealth inequality in the United States. We would need to go back to the Gilded Age to find similar levels of wealth inequality. The latest data shows that roughly 75 percent of the financial wealth in America is held in the hands of the top 10 percent of households. Or to invert this, 25 percent of all US wealth is divided up amongst the bottom 90 percent of the population. Wealth is the true measure of financial stability. It used to be the case that housing was the one safe store of wealth for Americans but Wall Street has hijacked this asset class and has converted it to another commodity to speculate on. Yet by looking at spending habits and financial behavior many Americans think they are simply temporarily embarrassed millionaires.  They act against their own interests while wealth inequality rages on.
The average American is broke and buying things they cannot afford with debt again. Debt based consumer financing again filling the gap of a shrinking middle class.
At a family Thanksgiving get together we typically have a usual crowd showing up to celebrate the year that has passed. For many, this is the only time we see each other. A familiar face was not there. We asked what happened and apparently he had to work on Thanksgiving Day because stores are now pushing the shopping addiction into another day. Mind you that Americans for the most part are broke. It isn’t enough that we have Black Friday and cyber Monday to get people to spend outrageous sums of money on things they really don’t need via faux holidays. So it is no surprise that auto sales are on a sharp upswing from the lows of the recession. However, much of this is coming with people getting into massive auto loan debt. Those zero percent down deals are back again. All of this is happening while household incomes retreat to inflation adjusted lows that were last experienced in the late 1980s. Auto debt, credit card debt, and student debt are all on the rise again.
The frightening lack of accounting transparency in the student loan market: New York Fed has student loan debt at $1.027 trillion while Fed Board of Governors in Washington has it at $1.214 trillion.
You see what you want to see. This is the current state of the financial markets. When a handful of observers were warning the Fed and multiple government agencies about the subprime crisis floating in the market, hardly anyone wanted to listen. This is the same kind of accounting trickery that is now pervasive in the student loan market. Ironically, the vast majority of student debt is backed by the government and issued out by friendly member banks yet somehow, it is hard to get an accurate number of the actual amount of student debt floating in the market. This does seem to be changing as the Fed Board of Governors in Washington is now adopting a much larger scope of data. How big is this difference? Try $187 billion or an increase of 18 percent of the data that is commonly reported. This is important because student debt is the fastest and most problematic debt class in America today.