Geopolitical & Investment Cycles

U.S. Debt Is Ridiculous!

by Mike Burnick | April 12, 2017

A special note from Edelson Institute Executive Editor Wayne Burritt: My friend and colleague Larry Edelson established The Edelson Institute to help investors protect and grow their wealth. Here’s a video about Larry, the Institute, and the team behind his on-going legacy. I hope you enjoy it. Click here to view the video.

It’s happening again.
You’d think we would have learned from the 2008 financial crisis. But consumers, governments and central bankers are back to their spending ways.
The latest installment comes from Federal Reserve data showing U.S. credit card debt topped $1.0 trillion in February, marking the highest level since January 2009.
I’ll let you catch your breath.
Yes, that’s trillion with a “T”.
And that’s not all: U.S. consumers have also amassed $1.4 trillion in student loan debt and $1.1 trillion in car loans.
All told, between credit cards, student loans, and car loans, U.S. consumers are saddled with a mind-boggling $3.5 trillion in debt.
I don’t know about you, but that ridiculous total just makes my head swim.
There’s plenty of blame to go around on how we got here.
For instance, years of ultra-loose monetary policy by the Fed encouraged consumers to borrow, hoping for a roaring economy to repay those debts.
In addition, lackluster wage growth and soaring healthcare costs have also pounded away at their pocket books.
In the meantime, the anticipated economic growth has been slow to materialize. And that’s fueled greater addiction to easy money. Consider …

• U.S. student loan debt jumped more than 170 percent over the last decade.
• March U.S. commercial bankruptcy filings jumped 28% on the month, while personal bankruptcies soared 40%.
• Fourth-quarter U.S. auto loan delinquencies reached their highest level since late-2008 at $23.27 billion.

American consumers can’t do their part to stimulate the economy because they’re shouldering a staggering amount of debt.

Speaking of autos …
We’re starting to see cracks in the auto market, including three consecutive months of falling sales and rising loan delinquency rates. And that’s before a record 3.6 million off-lease vehicles come to market this year.
The fact is we’ve been screaming about soaring U.S. government debt and underfunded state and local pensions for the last few years. And the unsustainable consumer debt pile that I’m talking about today is nothing new.
Sure, all is well as long as U.S. financial institutions and foreign investors have both the resources and desire to fund the debt.
But as soon as the U.S. economy weakens, the U.S. dollar falls in value, or confidence is shaken in some other dramatic fashion, investors will rush for the exit doors.
And that’s going to put even more pressure on the government to get cash in just about any way they can: More taxes … more fees … more intrusions … and, sure, outright confiscations.
And that’s why I recommend my members stay away from owning U.S. Treasury securities and purchase high-quality blue-chip companies on setbacks. And above all: Know when to buy, not just what to buy.
Good investing,
Mike Burnick