The State of The American Debt Slaves

The comments above & below is an edited and abridged synopsis of an article by Wolf Richter

Total consumer credit rose 5.4% in the 4th quarter to a record $3.84 trillion, according to the Federal Reserve. This includes credit card debt, auto and student loans, but not mortgage-related debt. There has been a blistering surge in consumer debt, starting in Q4 2016.

In September 2017, the Fed announced an adjustment of consumer credit data going back to Q4 2015, affecting auto loans, credit card debt and total consumer credit. This adjustment was based on survey data collected every 5 years. But for Q4 2015, the adjustment knocked auto loan balances down by $38 billion.

Student loans surged 5.6% in Q4 year-over-year. Between 2007 and Q3 2012, the year-over-year increases ranged from 11% to 15%.

Student loan balances had the steepest growth rates during the financial crisis. From Q1 2008 to Q4 2017, they soared 141%, from $619.3 billion to $1.49 trillion, multiplying by 2.4 times over those 10 years. Over the same period, the consumer price index rose 17.5%.

Debt doesn’t just go away. If one side cannot pay, the other side takes a loss on their asset. Some auto loans and credit card debts remain on the balance sheet of lenders, while others are securitized and spread around among investors. But most student loans are guaranteed by the taxpayer or directly funded by the government.

Student loans have fattened entire industries: Investors in private colleges, the student housing industry, the textbook industry…They’re all feeding at the trough held up by young people and guaranteed by the taxpayer.

In terms of corporate debt, it’s only a question of how disruptive the adjustment will be, whether it will be just a sell-off or junk-bond mayhem.