$16.1 trillion: This is the level of US household debt, consisting primarily of home-buying mortgages, that is at risk today from the combination of rising inflation, interest rate hikes, a high cost of living and diminishing prospects of a system revival. A search for that Federal Reserve Bank of New York has revealed that debt has reached an all-time high, more than 25% above 2008 levels before the Great Subprime Mortgage Crisis exploded, and has continued to grow over the years accommodating fiscal and monetary policies accelerated by the pandemic and ended abruptly by the Fed in recent months with the first rate hikes.
The increase since the beginning of the year is over 200 billion dollars, the increase since the beginning of 2020 is even 2 billion: the colossal money transfers Operated by Donald Trump and Joe Biden with the leverage of fiscal policy for citizens to halt the pandemic recession and the Fed’s long-accommodating purchasing policy, the mix of resource availability and easy interest rates has created the mix of resource availability and easy interest rates to lure Americans into a new bubble frenzy to fall. To tow it, primarily the real estate market. Of that $16,100 billion, 71%, or $11,431 billion, is related to debt real estate loanincreased by 27% from January 2020 to date (+2.4 trillion) due to the increase in property prices.
“Rising house prices and mortgages it has made it almost impossible for many Americans to afford a home. And even if the market shows signs of cooling, many potential buyers will remain on the sidelines for now,” economist Orphe Divounguy wrote on CNN’s website. Earlier this year, mortgage rates nearly doubled year-to-date. Combined with rising house prices, the country’s standard home loan payment is up about 60% year-on-year, dragging housing affordability to a fifteen-year low. June, “he added. The impact of commodity prices, the spiraling inflation is certainly weighing on the market, the fact is that the first signs of a slowdown have arrived: plans for new home construction are up 6 in June year-on-year, Down 3%, and those of single-family homes whose owners are symbolic, the historic emblem of an American dream that’s part of the country’s rhetoric, fell 11.4%.
The connection between Increase in debt burden and decline in construction activity It is a bad sign, pointing to a slowdown and therefore lower debt sustainability for those who took it on in the context of a slowdown in economic growth. And after flattening out due to the pandemic, the main interest rate on mortgage debt affected by bankruptcy has risen to 2% of the total, according to the Fed. But the failure rate is increasing everywhere. Among auto loans, 5% of total American personal debt, 6% of capital, is attributable to subjects who have laundered at least a 30-day installment; on credit card debt, again at 5% of debt, that percentage is 4%. The ones who will be saved for now are the Holders of student debt, equal to 10% of the capital subject of analysis. Before the pandemic, 10% of student debt that exceeded $1 trillion was in default.
The Trump administration has frozen emergency repayments. The Biden administration went a step further this spring by announcing new measures to help millions of people get student debt relief, prompting 3.6 million borrowers to spread their debt over longer periods of time three-year credit amnesty and as many as 700,000 of the 43 million student loan borrowers are witnessing debt relief undertaken by the federal government for a total of more than $17 billion. Insolvency has so far been limited to 1%. But how long can this dynamic continue without a structural reform that gives students more security? Overall, the picture seems to outline a context in which private debt is once again a liability for Americans and not a driver of development.
“The Fed,” writes the Financial Times, “is expected to hike rates by 0.5 to 0.75 percentage points at its next meeting in September. Evidence of a slowdown in the world’s largest economy — a second straight quarter of GDP contraction reported in July — initially led investors to bet the Fed would slow the pace of rate hikes after two 0.75 percentage point hikes in June and July would slow down in September. “However, a strong jobs report released last Friday, showing continued wage increases across sectors, has changed the outlook for now.” And while the number of overall defaults is not above the warning threshold for now, borrowers and holders of to keep an eye on credit poorer sections of the population, today’s version of the “subprime” of the early 2000s.
For the financialization of the system, for the constraints associated with the rapid transformation of a subject into bankruptcy, and for the lack of social networks, it takes little for a problem to spread like wildfire. Neither Republicans nor Democrats appear to have any problem in mind that could be a direct result of the country’s inflation and interest rate decisions. But the issue of debt burden and its relief for America’s middle and poorest classes, already burdened by insecurity, high living costs and inequalities, will soon emerge in all its brunt. And it will be impossible to ignore.