Recent data from the N.Y. Federal Reserve pegged first-quarter U.S. household debt at a staggering record $12.73 trillion. And the way I figure it, that’s an increase of $149 billion from the fourth quarter of 2016.
Plus, it marks the fastest year-over-year increase in more than two years.
Terrible!
Some talking heads view new record debt levels in a positive light. They point to a stronger labor market, an uptick in incomes, and elevated consumer sentiment as factors that fuel consumers to take on more debt.
I don’t buy it for a second: These aren’t the kinds of records we want to break.
In fact, this report is chock-full of alarming factors. For instance:
- Nearly $615 billion of the outstanding debt is considered delinquent, with 70% of that total seriously delinquent — more than 90 days past due.
- Household credit card debt stands at $764 billion, with an elevated delinquent rate of 7.5% and climbing.
- Indications that more consumers are tapping credit cards out of necessity, with a larger portion of them falling behind.
Dig even deeper into the report and things get worse … a lot worse. And that’s especially true of the automotive and student loan parts of this massive debt load.
The fact is auto loan debt performance is downright lousy, evidenced by rising delinquency rates in eight of the last 10 quarters. This comes after years of easy monetary policy, low interest rates, and a ton of easy money looking for a home in the auto loan sector.
Plus, it puts the pace of U.S. auto sales — a big driver of economic growth — in jeopardy: When borrowers don’t pay back their loans, lenders get antsy and pull back on the purse strings. That hammers sales growth.
And it may get worse before it gets better: Last quarter, 20% of auto-loan originations went to subprime borrowers.
And when it comes to rising student debt — which I’ve warned you about before — the news is just as bad: Student loan debt increased to $1.34 trillion in the first quarter. And this segment boasts a whopping 10% delinquency rate, the worst among all the categories.
Now get this: Right now, you can’t include student loans in bankruptcy. But that could change with a new bill being floated in Congress, H.R.2366. This bill amends the bankruptcy code and would permit borrowers to discharge student loans.
And there’s no way to sugarcoat it if that happens: The taxpayer would once again be left picking up the tab — to the tune of hundreds of billions of dollars.
This is one more example of where big government is desperate for funding and seeking new ways to dig into your pockets. It’s another reason to avoid putting too much of your wealth into government-backed debt.
Instead, look at best-of-breed blue-chip stocks — those with solid balance sheets and stable revenues — on the best sectors. Right now, I’m watching for new opportunities in the energy sector and precious metals — but wait for my signal.
Good investing,
Mike Burnick
Dan S May 31, 2017
With all this personal and government debt, the economy keeps chugging along and the stock market is skyrocketing to new record highs. I guess printing currency out of thin air is a good thing after all. Spend those greenbacks and charge to the hilt when things go bad the Fed. will bail us all out like they did the supposed failing banking and auto industries. There is no value to most currencies its all manipulation of peoples lives to keep the peasants busy, quite a joke actually. Is their a major change coming? I seriously doubt it!
L.K.Wood May 31, 2017
Banks are breaking the first rule of lending by lending money to people who have no way of repayment. The credit card, credit rating and banking system is rigged. Why would you extend $10000 worth of credit to someone and then
raise the rate if they use 40%? How can anyone of good conscience agree that rates of 24-28% are reasonable?
Payday loans charging thousands to folks who borrowed hundreds?
When the people become like sheep the leaders become like wolves…….no bank loans for small builders, rehabbers
or most small business men but a boat load to sink the common man. Coincidence?
Worste recovery because small business men have no access to loans
Mark Kaufman May 27, 2017
How does lower consumer spending increase consumption and GDP?
Mike May 27, 2017
Many people are under the illusion that this Nation runs on the hard work of all, entrepreneurial expertise and vigorous capitalism. This was at one time mostly true. Now however this Nation runs on debt. The simple fact is we consume more than we produce. The shortfall is made up in debt. In the Government this debt finances welfare, war, warships and tax cuts for the wealthy. In the financial economy it finances mergers, stock buybacks and speculation. In the consumer economy it finances a standard of living beyond current earnings. The wealthiest have won as they now command more of America’s wealth and earnings than at anytime in the past. Corporations have won as they have decimated their workforce, set up production is slave wage Nations and pocketed the difference. Wall Street has won as it now commands 20% of the income of the S&P up from 6% before debt became the prime motivator. The losers are the bottom 95% of American earners.
mkj90620 May 30, 2017
Maybe time to get out of the 95%,if you don’t like being there.Otherwise quit complaining.I’m seeing Asians taking most of the doctor,dentist and engineer jobs,here in So California.Maybe native Americans should stop the envying and start working,saving and investing more.
Mike May 31, 2017
Where did I say I wasn’t one of the 5%. Unlike Republicans just because I climbed the ladder of success doesn’t mean I want to pull it up after me. I also support civil rights, women’s rights and LGBT rights even though I’m an old white straight and fairly well to do male. There is good economic policy and there is bad economic policy, I prefer good.
Origbless June 16, 2017
Asian parents raise their children to be good scholars and then can largely afford to pay for good higher
education for their children.
TSettle May 26, 2017
Good article.
Max Kortepeter May 26, 2017
Mike Burnick is right in his analysis.
John May 26, 2017
Forgiving student debt should be outlawed. The mind set of those forgiven debt at an early age just lays the foundation of more unpaid debt in the future. As Dr Phil says ” past behavior is indicative of future behavior!”
I have no idea as to the wordings of the contract between the student and government – but inasmuch as it seems the contract can be altered, then alter it to include ways in which the debt can be paid – like, WORKING!!! Bernie the benevolent is the prime cause of the current dialogue. Just attach a lien on the earnings.
God help us!!
Jerry rosenbalm May 26, 2017
So………where do we keep our cash now?
Paul May 26, 2017
larry use to keep his subscribers apprised of precious metal trends; haven’t seen much from you Mike, is this going to change?
Jeff May 26, 2017
The student load issue is another place where every time the Gov’t allows easy money and either originates the loans itself or takes over loans from a private lender things go in the toilet. Another example just like the housing crisis/mortgage bubble and banking crisis of 2008. Lenders indiscriminately loan regardless of ability to pay anything back; borrowers indiscriminately borrow and apparently give little thought to whether that education they got will lead to a job that will allow them to pay it back; and all this money allows colleges to indiscriminately raise the cost. Who’s the beneficiary of this? Not the people with all the debt and no job. Not the taxpayer who’s about to get hammered paying for this. The beneficiaries are the predominately liberal schools that seem bent on stifling free speech that help create and turn out snowflakes incapable of independent thought or even listening to an alternate opinion. Where is the common sense or accountability in any of this?
mkj90620 May 30, 2017
I don’t think Democrats care about the future.They care about short term votes and it’s working.especially here in California.I think it will spread to other states as the poor immigrate there and Democrats will take the country.
Origbless June 16, 2017
Private companies have done very well with student loans. Republican Prop 13 and like legislation across the nation have deprived many of our public schools of regular funding. You might wish to read “American Amnesia.”