The Bubble Grows Bigger
The bubble grows bigger... Americans owe more than ever before... Checking in on the canary in the credit-market coal mine... We don't know when this boom will end, but we do know how... Last call for Tama's emergency bitcoin briefing...
Another quarter, another new high for debt...
Last week, the Federal Reserve Bank of New York released its latest quarterly report on household debt and credit. Regular Digest readers won't be surprised to learn that Americans continued to borrow like mad over the holidays.
Total household debt rose another $193 billion in the fourth quarter, to a record $13.15 trillion. It has now risen for 14 consecutive quarters and five straight years... And now sits just shy of half a trillion dollars more than the previous peak in the third quarter of 2008.
Credit-card debt once again led the way. It rose 3.2% in the quarter to $834 billion. Student and auto loans increased 1.5% and 0.7%, respectively, to a record $1.38 trillion and $1.22 trillion. And even mortgage debt increased substantially for the first time in several quarters, up 1.6% to $8.88 trillion.
On the bright side, the New York Fed did note that "serious delinquencies" – defined as loans that are 90 days or more delinquent – didn't worsen for most categories last quarter. In fact, the overall delinquency rate ticked down a fraction from 2.4% to 2.3%, thanks largely to an improvement in mortgage debt. However, it was up significantly year-over-year.
This trend is unsustainable...
Sooner or later, it will end... and one of the largest credit-default cycles in history will begin. But like the "Melt Up" in stocks, we suspect it could continue a little longer.
The following chart shows the U.S. high-yield corporate "spread." This is the difference in yield between U.S. Treasury bonds and high-yield (or "junk") corporate bonds.
In simple terms, this spread tells you what, on average, investors are demanding in extra yield in order to hold the riskiest corporate debt instead of government bonds. This makes it a good "early warning" indicator of broad credit-market trouble.
As you can see, junk-bond spreads have begun to move higher this year. But they remain below 4% today. This is near their "tightest" levels in history, and well below levels that would indicate stress in the credit markets...
In short, the junk-bond market – the canary in the credit-market coal mine – is healthy... for now.
Again, we can't know exactly when this boom will end...
But we can guarantee it won't end well.
Regular readers know Porter believes the most likely outcome is a "debt jubilee"... a financial "reset" that wipes out trillions of dollars of this debt through a massive devaluation of your hard-earned savings. As he explained in the September 22 Digest...
What happens in these situations? When deleveraging doesn't work, the debt burden grows and grows. It begins to weigh heavier and heavier across the poorest segments of society. It becomes life-choking. It leads to despair. To depression. To violence. And to revolution.
I don't think I have to tell anyone that the federal debt burden has been growing uncontrollably for the last decade. Since 2008, total U.S. federal debt has more than doubled. That is, our government has borrowed more money in the last 10 years than it borrowed in the 231 prior years of its existence, combined.
Yes, in terms of debt to gross domestic product (GDP), government borrowing was larger during the Civil War and during World War II. That's true. But it's also irrelevant. What really matters is that it's not only the government's debt that continues to grow uncontrollably. What really matters is that our country's total debt load (household, corporate, and government) continues to grow. Even after the crisis of 2008. Even with $4 trillion in new money. Even with the huge number of mortgage defaults (over $1 trillion in losses).
And... what really matters is that, more so than ever before, the burden of these debts is falling most heavily on the poorest members of our society – the people most likely to be radicalized. The people most likely to be violent. The people most likely to declare a jubilee.
If you're like most folks, you might be skeptical...
You might assume that this was just a provocative story Porter dreamed up to sell more newsletter subscriptions. After all, nothing like this could actually happen in American today... right?
Think again.
Not only is a jubilee possible... it's already being discussed in "mainstream" circles. As CBS News reported earlier this week...
The GOP tax bill is providing a $1.5 trillion windfall, which will mostly be enjoyed by the rich and corporations. But what if there were another way to spend that money that could benefit more middle-income Americans while eliminating some of the country's inequalities?
Look no further than getting rid of America's student debt, argue researchers at Bard College's Levy Economics Institute. They examined the potential impact of canceling the $1.4 trillion in student debt that 44 million Americans are carrying...
Erasing the debt would add as much as $1.1 trillion in economic growth over a decade, while more than 1 million new jobs would be created each year, the researchers forecast. Unemployment rates would be reduced by as much as 0.36 percentage points.
Expect to hear even more about these ideas as debts continue to rise and more Americans fall hopelessly behind. If you still haven't seen Porter's detailed presentation on this situation, be sure to check it out right here.
Finally, a quick reminder...
Tonight's live Q&A session with cryptocurrency "insider" Tama Churchouse kicks off less than two hours from now.
If you're like many of our readers, you probably have questions about bitcoin and other "cryptos" today...
Has the "bubble" popped, or is this just the latest big correction in an ongoing bull market?
If you don't own any of these digital assets, is it too late to buy now? If you do own them, should you take profits or add to your positions before the next big rally?
Tama will answer all these questions and more, live on the air tonight. And again, it's absolutely free to attend. Simply click here to reserve your spot before 8 p.m. Eastern time.
New 52-week highs (as of 2/14/18): Amazon (AMZN), CME Group (CME), Grubhub (GRUB), Match Group (MTCH), New York Times (NYT), Okta (OKTA), and VF Corporation (VFC).
The feedback on our 2017 Report Card continues to roll in. What's on your mind? Let us know at feedback@stansberryresearch.com.
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Regards,
Justin Brill
Baltimore, Maryland
February 15, 2018