Debt | timiacono.com

Private Sector Debt Still Unmanageable

Rex Nutting states the obvious (well, at least to anyone who isn’t an economist and who doesn’t work for the Federal Reserve) about private sector debt in this item at Marketwatch:

For the past six or seven years, most of what the Federal Reserve has done to fix the problem has been focused on getting the credit spigot turned back on: cutting interest rates and hectoring banks to start lending again, even though demand for loans was weak.

It’s a surreal policy because, while the proximate cause of the Great Recession was the collapse of borrowing in 2007-2008, the ultimate cause was the growth of unsustainable debt over many years, culminating in a doubling of debt between 2000 and 2007.

It’s nice to see that “unsustainable debt” as the root cause of our recent woes is an idea that is catching on and, it seems likely that, after another few years or so of tepid consumer spending, we’ll at least begin to rethink the whole idea of indebted American consumers as the primary engine of economic growth.

The Housing Market’s Lost Generation

There’s lots of compelling data in this Wall Street Journal story ($) about how millennials are getting off to a difficult start in life, asset accumulation-wise, due to a number of factors, most of which their baby-boomer overlords in government and banking seem to like just fine, yesterday’s student debt relief effort by the Obama Administration notwithstanding.

As it relates to housing, twenty-somethings have been notable no-shows in the recent housing boom for reasons that should be clear in the two graphics below.

Also see this CNBC report on a recent Wells Fargo survey that showed millennials being overwhelmed by debt as never before. It’s not unusual to spend your 20s treading water financially as you cope with finding your place in the world, but today’s younger set certainly seems to have the deck stacked against them.

Just wait til they find out in a couple decades that their baby boomer parents have had to spend their inheritance to make ends meet in their golden years.

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New Hope for the Economics Profession

I’ve not yet perused House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again, but it’s just been added to my summer reading list as there are apparently two more U.S. economists thinking a bit more outside of the box, said box still keeping most dismal scientists baffled about how we arrived at our current slow growth, widening inequality predicament.

Here are authors Atif Mian and Amir Sufi in an interview with the Financial Times.

Of course, Mian and Sufi have a blog by the same name and, while Larry Summers thinks their analysis is pretty good, he has few kind words for their policy prescriptions.

This is real progress, I think…

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Pew Research has compiled a pretty intriguing report on what burgeoning student loan debt is doing to the finances of those young Americans who pursue higher education. There are lots of good charts packed with, sadly, unsurprising data about what a burden this debt is for those just starting out in their careers.

Student debt burdens are weighing on the economic fortunes of younger Americans, as households headed by young adults owing student debt lag far behind their peers in terms of wealth accumulation, according to a new Pew Research Center analysis of government data. About four-in-ten U.S. households (37%) headed by an adult younger than 40 currently have some student debt—the highest share on record, with the median outstanding student debt load standing at about $13,ooo.

An analysis of the recent Survey of Consumer Finances finds that households headed by a college-educated adult without any student debt obligations have about seven times the typical net worth ($64,700) of households headed by a young, college-educated adult with student debt ($8,700). And the wealth gap is also large for households headed by young adults without a bachelor’s degree: Those with no student debt have accumulated roughly nine times as much wealth as debtor households ($10,900 vs. $1,200). This is true despite the fact that debtors and non-debtors have nearly identical household incomes in each group.

I have no idea whether my college loan experience was typical at the time, but back in the early 1980s I had racked up about $7,500 in student loans when I picked up my diploma and began my first job as an engineer making $30,000 a year.

My guess is that most college graduates today who enter the workforce with college loans to service would be quite happy with a 4-to-1 ratio of annual income to debt, which makes paying this off quite manageable. That ratio is probably a lot closer to 1-to-1 today.

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