The OTHER Debt Bubbles: How Private Sector Debt Could Trigger the Next Financial Crisis

The $22 trillion official national debt is a much discussed problem, even as politicians exhibit zero motivation to do anything about it. But as big an economic overhang as it is, government debt isn’t likely to trigger the next financial crisis.

Yes, servicing the growing federal debt bubble will depress GDP growth, cause the value of the dollar to drop, and raise inflation risks. But the bubble itself won’t necessarily burst – not anytime soon.

As long as politicians face no political consequences for deficit spending, and as long as the Federal Reserve keeps the Treasury bond market propped up… then many more trillions can be added to the national debt.

Meanwhile, more fragile debt bubbles exist in the private sector. Unlike government debt – which carries the implicit backing of the Fed’s unlimited printing press – debts incurred by corporations, investors, consumers, and students can default.

Globally, there exists $250 trillion in debt against economic assets of around $100 trillion. The notional value of all derivatives now approaches a quadrillion dollars.

It’s been called the “everything bubble”… and it could soon lead to the “everything bust.”

U.S. household debt rose to a record $13.5 trillion in the fourth quarter of 2018. Mortgages, student loans, car loans, and credit cards represent enormous burdens even during a good economy. These burdens will prove unbearable for millions of Americans in the years ahead.

For many the financial crisis is already here:

•Pending home sales have fallen on a year over year basis for 13 consecutive months.

•Farm loan delinquencies recently hit their highest level in 9 years.

•More than 7 million Americans are delinquent on their auto loan payments – an all-time record.

•Some 5.1 million people are in default on their student loans.

Student loans now rank as the second largest biggest category of American consumer debt, just behind mortgages. The cruel reality is that many of these “gender studies” and “art history” type degrees will never be worth as much in the job market as they cost to obtain.

The main consequence of the government-subsidized student loan bubble is to enable college tuitions and fees to rise at a much higher rate than salaries. It’s not that universities have had to raise costs to pay for top-notch professors.

Instead, the biggest growth in university hiring has been for administrators and “Diversity” indoctrinators who get fancy titles and plush salaries while providing little to no useful instruction.

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