American consumers are still propping up the economy spending money they don’t have. But how long can it last?
After a slight slowdown in September, consumer borrowing jumped again and set another new record in October, according to the latest data released by the Federal Reserve.
American consumer debt pushed to a new record of $4.15 trillion in September. Part of that equation – the continued surge in the levels of student loan debt.
Student loan balances jumped by $32.9 billion in the third quarter this year, pushing total outstanding student loan debt to a new record of $1.64 trillion. Student loan balances have grown by 5.1% year-on-year.
Over the last decade, student loan debt has grown by 120%. Student loan balances now equal to 7.6% of GDP. That’s up from 5.1% in 2009.
Corporations are piling on the debt.
Last week, companies borrowed $74 billion in the US investment-grade bond market. It was the largest corporate debt increase for any comparable period since they started tracking such things in 1972.
Gold has become a lifeline for Indians in the midst of a severe credit crunch.
When the state-run lender refused to extend Babasaheb Mandlik credit, he used his wife’s gold jewelry as collateral for a loan in order to buy cotton seeds before the summer sowing season window closed.
As we reported last week, consumer debt continues to break records month after month. Americans owe over $4.3 trillion dollars in revolving debt (primarily credit cards), student loans and auto loans. When you factor in mortgages, the number climbs to $13.54 trillion. That figure was $869 billion higher than the previous peak of $12.68 trillion in the third quarter of 2008 (right before the crash) and 21.4% above the post-financial-crisis trough reached in the second quarter of 2013.
But many mainstream analysts downplay this surge in debt. And on the surface, the numbers do seem to indicate the risk isn’t as big as it was prior to the 2008 financial crisis. But as Wolf Richter explains, the averages conceal a different reality.
Bankers, investors and executives are increasingly worried about corporate debt, according to a Reuters report.
Specifically, the concerns center around “leveraged lending.” These are loans made to firms already deeply in debt. Think subprime loans for corporations. As the Reuters report put it, “the concern is that the loans would be difficult to either collect or resell in a downturn, putting both the borrower and lender at risk.”
There has been a lot of volatility in the stock market over the last couple of months. Peter Schiff has been saying we are already in a bear market. But most mainstream analysts remain upbeat. They insist the recent volatility is normal. The economy is picking up steam. Inflation remains tame. The jobs market continues to grow. Everything is great!
But there are realities underlying this market few people seem to be paying any attention to, and they reveal a serious disconnect between corporate America and Wall Street.
Companies are drowning in debt.
Over the last two years, the Federal Reserve has been nudging interest rates higher and their efforts are starting to bear fruit in the marketplace. Bond yields are beginning to climb.
The question is how high can rates go before the house of cards the central bankers built comes tumbling down?
Remember back when mortgage lenders loosened credit standards making it easier to get a loan and blew up a giant housing bubble?
That’s happening again.
According to a report released by Fannie Mae, lenders facing lower profit margins are trying to expand the borrower pool.
Facing constrained mortgage demand and a negative profit margin outlook, more lenders say they have eased rather than tightened home mortgage credit standards, according to Fannie Mae’s third quarter 2017 Mortgage Lender Sentiment Survey. Across all loan types – GSE Eligible, Non-GSE Eligible, and Government – the net share of lenders who reported easing credit standards over the prior three months reached a new high since the survey’s inception in March 2014, after climbing each quarter since Q4 2016.”