The accelerating race to a student debt implosion: Federal student loans rose by $266 billion since 2011. 85 percent of consumer debt growth since 2011 because of student debt.
The Federal Reserve released an interesting report on consumer credit this week. While the mainstream spin is that it is good that consumer loans are growing, the vast majority of the growth is coming from the student debt portion. The student debt problems are starting to become dramatic given rising default rates combined with sub-par institutions essentially operating as paper-mills financed by easy government money. Of course, like the housing bubble of the 2000s, many connected individuals see this but what motivation is there to pop this bubble? Who has the fortitude to step in and pop this bubble before it simply implodes on itself? What we have learned from history is that people will simply raid the market and ride this truck until the wheels go flying off in spectacular fashion. Yet the damage will be deeper and more profound the longer the bubble is allowed to grow. The student debt market is now well over $1.2 trillion. Not only is this growing, but since 2011 student debt has grown by $266 billion. The student debt bubble is becoming ripe for the popping unfortunately.
Failure to launch into household formation: Record 36 percent of young Americans (18 to 31) living at home with parents. Where is household formation coming from?
The notion that the housing market is surging because of young Americans buying up homes to form households is simply incorrect. The housing market is rising like an artificial phoenix built on Wall Street’s insatiable appetite to leverage easy money from the Fed and investors. If we look at data regarding young household formation we actually find that a record number and percentage of young Americans are living at home into their 30s. Many look at places like Italy with cultural norms that favor children living at home into older ages and think that somehow, Americans are very different. Well apparently this isn’t the case when we look at the numbers. The economy has been very tough on young Americans and the lack of household formation in this group simply reflects constrained finances for this group.
Line up and prepare for the next bailout in student debt: Student loan debt crosses the $1.2 trillion mark. $248,000 for an undergraduate degree?
The nation is fully engulfed in a student debt bubble. The problems with student debt are numerous yet this unrelenting bubble is allowed to grow like weeds in a garden. Going back to 2000 total student debt outstanding rested around $200 billion. Today it is over $1.2 trillion. Keep in mind that during this time household incomes have retreated back to what they were in the mid-1990s. So college costs more but you earn less. Sounds like a winning recipe! Compounding this debt bubble is the reality that half of college graduates are working in jobs that don’t employ their undergraduate degrees. I continuously see that college graduates have a lower unemployment rate compared to others but in many cases this means a Starbucks job was given to someone with a college degree versus one without a degree. I’m not sure that will be a big help when paying back $50,000 or $100,000 in student debt.
The American dream myth: Income mobility; 4 out of 5 Americans struggle with poverty, joblessness, or go on welfare at some point during their lives; and bottom 80 percent of Americans control 7 percent of total wealth.
There is an odd sort of Greek-like mythology that the American dream is only getting stronger when various pieces of economic data clearly show that this is not the case. The middle class has noticeably shrunk over the past few decades. Income inequality is at levels last seen during the wildly opulent Gilded Age. We are seeing a record percentage of our population on food stamps. This certainly doesn’t sound like the American dream. This dream once centered on economic prosperity built around good jobs, a strong middle class, and growth opportunities for those that worked hard. As we devalue work in a low wage system that exploits workers and the middle class and the mainstream media glorifies the financialization of the system we have to ask is the Americans dream a reality or a myth?