What is really important is the ECONOMY. You have heard the theory of bubbles, the idea that the government takes an action such as lowering interest rates, and everybody falls for the idea of buying a house even though they cannot afford it. This creates a real estate bubble where the prices rise fast and then the bubble collapses. Everybody gets hit hard and billions and trillions are spent on trying to recover the financial system. We have two more bubbles coming, and they are smaller but nonetheless carrying with them the same sort of consequence. One is student loans and the other is auto loans.
Student loan debt, which used to be an individual catastrophe – if you were carrying $30 to $40,000 or more in college and post graduate loans. This debt could be a real problem in terms of your going out and getting a job and having enough money to start a family. But now, thanks to Barack Hussein Obama it has become a taxpayer problem, because 90% of the loans that have been issued since Congress lowered the interest rates on student loans the result is that taxpayers are on the hook for at least the interest if not the principal.
If you, had begun to make payments on your loan, then you now have to pay just a fraction of that back since the interest over a 10 year period is where the money is made. A recent study has shown that college graduates now default 14.7% on the total loan. With about t 7 million student loans averaging $20,000 that’s a lot of money that Uncle Sam is counting on to come into the Treasury which will not be coming in.
Car loans –they are giving them away. A New York Times article tells the story of Rodney Durham. Rodney got Wells Fargo to lend him $15,197 to buy himself a used Mitsubishi sedan . Rodney Durham is 60 years old. He last held the job in 1991 and has once gone into bankruptcy. He lives on Social Security disability. His loan application says that he earned $35,000 a year at a hospital in Binghamton, New York. The New York Times reports that he told the dealer he had not worked at the hospital for more than 30 years. But Wells Fargo granted the loan anyway. Now course, he has missed several payments and Wells Fargo is trying to repossess the car. Sounds familiar doesn’t it? The New York Times did an investigation. Remember the big headlines for months, that the auto industry is a bright spot in the recovery? We are selling more cars this year than ever, more cars and vehicles since 2006-7 and the auto industry is leading the economic recovery.
Here is how they did it. They began selling cars to people who could not make the payments. One in four auto loans last year went to subprime borrowers- those defined as credit scores of 640 or less. Auto loans for people with proverbial bad credit have leaped 130% in five years. That is how Barrack Hussein Obama has been re-doing the recovery; making it appear that we are having a recovery -Potemkin recovery. (To better help you understand, try any one of these links: http://www.aei.org/article/economics/financial-services/housing-finance/is-the-fed-blowing-a-new-housing-bubble/ or http://www.bankinglawconnection.com/tag/potemkin-recovery/ . Both are authoritative sites that one should check often to understand the facts about a complex economy).
This is the New York Times, “Like subprime mortgages before the financial crisis of 2008, many subprime auto loans are bundled into complex bonds and sold as securities by banks to insurance companies, mutual funds and public pension funds, a process that creates an ever greater demand for the loans.” Again one of the big players- union pension funds- they are limited to only an 18% investment in the stock market (I haven’t been able to find out why that amount in the original legislation bur I will keep looking).
This is a house of cards, another quicksand bubble forming here. It is amazing. After having made the mistake and nearly destroying our economy, they are going to go back and make it again. It is not the same numbers of loans, not the same dollar figures that could bring down big financial institutions, but they are big numbers.
How about this study! A new study is out saying that 35% of the people in the United States face debt collectors. Most people have whittled down the size of their credit card debt since the great recession. In fact, as a share of people’s income, credit card debt overall has reached the lowest level in more than a decade. People are increasingly paying off the balances every month but roughly the same percentage of people are still getting reported for unpaid bills. So about 36 1/2% of the people in collections (this is a Federal Reserve analysis) are facing debt collection.
The Urban Institute did this study and one Caroline Ratcliffe has this description: “ A stunning 1 in every 3 Americans have debt in collections reported on their credit report.” Now how to explain this and you need to listen carefully to this explanation because it is a classic example of doublespeak. You know she cannot criticize Obama, she cannot criticize the ruling class, she cannot criticize the Federal Reserve, she cannot criticize any of these bubbles, so they have to get down to an obvious analysis. She continues: “Where incomes are lower, we see a higher percent of people with debt in collections.”
No kidding!!!! Where incomes are lower you tend to have less money to pay your debts. And to think she gets a whole lot more than you or I to say that. And why, Caroline Ratcliffe of the Urban Institute do people have less income? Why, because the economy is not recovered.
It’s also no coincidence that over the last 10 years, and accelerating over the last five, that the median net wealth of American households has decreased by one-third. We are one third less wealthy as a nation than we were 10 years ago. One-third less wealthy.
Are you better off now than before?