Is that smoke I smell? Is there a fire coming to our economy?
For almost two decades I have represented consumers who are struggling with debt. This job has put me in a unique position to see financial storms come and go, not only for individuals and families, but also for the economy as a whole. I have been a practicing attorney through three major meltdowns and I'm starting to see signs of the next one!
We are now in the ninth year of the current economic expansion and if it makes it to next summer, it will be the longest economic expansion in US history! Boom times don't last forever and this is probably the greatest boom Colorado has ever seen (possibly with the exception of the Gold Rush and I was NOT around for that). All parties come to an end... it's just matter of when.
Specifically, here are several recent signs that we might be headed for trouble again:
- Subprime auto debt is booming while defaults are soaring. Hello? Does this sound familiar? However, I don't think that a collapse in the subprime auto loan industry will wreck the economy the way the subprime housing collapse did (it's a problem in the Billions while the housing problem was in the Trillions). It isn't going to help! There's also a new trend of people taking out 96 month auto loans! Eight years of high interest payments on a depreciating asset. This is not going to end well.
- Consumer debt is exploding. Total US consumer debt grew 9% in 2017 and credit card debt increased over 13%! The banks have very short memories... They probably don't really care anyway. The Board and C-level executives all get paid millions in the good times and when the tide goes out and they're caught swimming naked the taxpayers get to bail them out. Why worry if you are running a major US financial institution? It's a win-win proposition. They just don't care because they don't have to. They are reckless with their lending in the good times and overly stingy in the bad times. If you think we can rely on the leadership of the financial industry to keep us out of trouble you are mistaken!
- Credit card defaults for the major banks increased 20% in 2017 alone. Ouch!
- THERE IS 1.4 TRILLION DOLLARS IN STUDENT LOAN DEBT with approximately 22% of that in default! That's about $300 Billion dollars in default and 1/2 the student loan debt hasn't even come out of deferment yet. Guess who guaranteed all those student loan obligations? YOU DID! They are guaranteed by the federal government (US taxpayer).
We are over-extended my friends. The US economy is reliant on consumer spending. Something is going to have to give.
The cycle is playing out (as it always does). An economic slowdown hits... fear takes over... money gets tight... the slowdown gets worse...eventually, things start to pick up...greed takes over...money gets loose... things pick up even more...we get over-extended.... a slowdown hits...
Is that smoke I smell?