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cali

(114,904 posts)
Mon Jun 16, 2014, 05:57 AM Jun 2014

The coming 'tsunami of debt' and financial crisis in America

The US Congressional Budget Office is projecting a continued economic recovery. So why look down the road – say, to 2017 – and worry?

Here's why: because the debt held by American households is rising ominously. And unless our economic policies change, that debt balloon, powered by radical income inequality, is going to become the next bust.

Our macro models at the Levy Economics Institute are showing that the US economy is about to face a repeat of pre-crisis-style, debt-led growth, based on increased borrowing. Falling government deficits are being replaced by rising debts on everyone else's ledgers – well, almost everyone else's.

What's emerging is a new sort of speculative bubble, this time based on consumer and corporate credit.

Right now, America is wrestling a three-headed monster of weak foreign demand, tight government budgets and high income inequality, with every sign that these conditions will continue. With that trio in place, the anticipated growth isn't going to be propelled by an export bonanza, or by a government investment boom.

<snip>

http://www.theguardian.com/money/2014/jun/15/us-economy-bubble-debt-financial-crisis-corporations

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LuvNewcastle

(16,820 posts)
2. Unless we make the wealthy come off some money, the trend will continue.
Mon Jun 16, 2014, 06:33 AM
Jun 2014

The most important thing is that people's incomes need to rise substantially. Everything, even necessities, are becoming so expensive that many people are borrowing just to survive. It isn't like we're all out shopping and buying new cars and jewelry. We're buying bacon at $5 a pound and gallons of milk that cost $5 a gallon. By the time we feed ourselves and pay for clothing, shelter, and electricity, there's little, if any, left. Borrowing is becoming a necessity. So we all need a significant raise.

We need higher taxes on the wealthy so we can pay for programs that will keep the ever-rising number of vulnerable among us from starving. We need to make sure the kids at school aren't eating slop for lunch that they have to throw away and families aren't eating chips and dip for dinner.

Finally, we need to make it easier to declare bankruptcy again. When they changed the bankruptcy laws, it really ruined a lot of people. We need the old laws reinstated so that people can make a fresh start and start saving money when they get their raises. Student loan forgiveness, or at least easier terms for repay, would really be a big help, too.

 

berni_mccoy

(23,018 posts)
5. There is a great deal of speculation in that article
Mon Jun 16, 2014, 07:04 AM
Jun 2014

Which speculates that the bubble could be bigger. They don't know and nobody knows. Second, the part that doesn't ring true to me is the increase in borrowing. I know most people who were affected by the first crisis (myself included) aren't increasing our their borrowing. The 99% simply doesn't have the credit. So who is causing this debt bubble? It certainly isn't the masses.

 

cali

(114,904 posts)
6. Of course no one knows for sure, but the speculation in that article is rooted in FACT
Mon Jun 16, 2014, 07:12 AM
Jun 2014

and you are flat wrong about borrowing. It's been reported for months. Basing your assessment of the borrowing habits of Americans on people who you personally know and your own borrowing habits is silly:

Americans Ramp Up Borrowing
U.S. Household Debt Posts Largest Quarterly Increase Since Before Recession

<snip>

http://online.wsj.com/news/articles/SB10001424052702303945704579390924287626780

More Americans borrowing against their homes

History repeats itself. Past is prologue. Everything is a cycle. Pick any cliché you want, but the fact is lending vehicles that practically disappeared following the 2008 credit crisis are back.

Home-equity lines of credit, often called HELOCs for short, jumped 8% in the first quarter, according to a report in the The Wall Street Journal. The report said $13 billion in HELOCs were extended in the first three months of the year, the most to kick off a calendar year since 2009.

<snip>

http://fortunefeatures.wordpress.com/2014/05/30/more-americans-borrowing-against-their-homes/

 

berni_mccoy

(23,018 posts)
8. Rooted in fact but still FEAR MONGERING
Mon Jun 16, 2014, 07:55 AM
Jun 2014

Here are some facts on household borrowing in the U.S.

FACT: Fewer people going to foreclosure increases the borrowing rate
FACT: New Mortgages DROPPED for the third straight quarter
FACT: Auto loans (asset-based loans) had a huge impact on the borrowing rate
FACT: The fastest growing debt class is student loans
FACT: Total Credit Card Debt borrowing DECLINED and is at it's lowest since 2002

These are all signs of a recovering economy, not another debt crisis. Again, ANYTHING can happen, but fear mongering isn't helpful. And that's what the OP you posted is.

BTW, the FACTS above come from the same rag you linked (the WSJ), but a more recent article (not something back-dated to Feb):

From May:

http://online.wsj.com/news/articles/SB10001424052702304081804579559813544267206

Americans made more progress in repairing their postrecession finances and have increased their overall borrowing, yet they are also showing an aversion to credit cards and new mortgages that could hinder the economic recovery.

Behind the uptick: Mortgage balances—which make up the bulk of U.S. household debt—rose $116 billion to $8.2 trillion, thanks in part to fewer people going into foreclosure, which drags down mortgage debt. Auto-loan balances grew $12 billion to $875 billion. Student-loan balances increased $31 billion to $1.1 trillion, maintaining its place as the fastest-growing debt category.

Despite all their progress digging out of the downturn, however, U.S. consumers are displaying a heightened wariness about using credit cards or taking out new mortgages.

The amount of credit-card debt outstanding fell to the lowest levels since 2002. Credit-card balances fell $24 billion to $659 billion from the prior quarter, just slightly below the level from a year earlier. New originations of mortgages dropped for the third straight quarter to $332 billion, the lowest since the third quarter of 2011, possibly due to rising home prices in many markets that have made buying less affordable.

 

cali

(114,904 posts)
9. It most certainly is NOT fear mongering but adoration of the President, blinds you
Mon Jun 16, 2014, 08:01 AM
Jun 2014

Clue: this isn't a criticism of the President.

Nothing you posted makes your case.

 

kelliekat44

(7,759 posts)
7. Rooted in reality. Lost jobs mean using more credit to stay afloat. Maxed out cards and all.
Mon Jun 16, 2014, 07:41 AM
Jun 2014

If you have a child with a family to support after losing a well-paying job this can happed almost over night to keep a roof over their heads after they exhaust all their saving, pay back taxes, lose their homes and get a poor credit ratings because of the inability to keep up.

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