Debt and the Economy

[VaughanJB]

Please please please - let's not get political in this thread. Whatever one thinks, we are where we are.

My question is - how worried are you about the economy, and the indicators of trouble ahead?

Car loan delinquencies are rising, hitting the highest levels in decades. Reports state that people handing the keys back to their lenders are high, and that these actions are not yet being reported to the banks bottom line. Home foreclosure filings have increased by 22% compared to a year ago, and an increasing number of people can no longer afford to keep up with payments.
Add into this, the student loan crisis. There are two sides to the argument, as always. On the one hand, people signed up for loans, and of course those loans need to be paid back. On the other side, many of these loans were at predatory levels of interest, and asking people to pay their loans will remove over a trillion dollars from consumer spending at a time when people are struggling.

In the mean time, credit agencies are marking the US down, and if the bills in play come to be, it is estimated that 2tr will be added to the national debt, with 600bn of tax cuts for the top 1% (apparently, the largest upward transfer of wealth in American history.)

Are we heading to a disaster of epic proportions?

 

[RedAlert76]

I try not to get too concerned over something I have no control over.

 

[VaughanJB]

I try not to get too concerned over something I have no control over.

I totally get that. However, in this case, it's something you'll be affected by, whether one wants to be or not. I'm trying to get my head around how the outcome of this can be good for the general populace.

 

[Teacher Terry]

I just read that nationwide we have the biggest inventory of homes for sale then we’ve ever had. There’s more homes for sale than possible buyers. Locally the prices of our homes have been declining and the homes are staying on the market for a long time.

I personally wouldn’t be surprised if we see inflation like we had in the 70s. Everything‘s going to be expensive and wages will not match the inflation rate.

I would love to be wrong about everything. Back in early January I decided to buy anything I thought I would need for at least the next four years so that the negative impacts of inflation wouldn’t be so devastating for me personally.

 

[Paco Dennis]

@VaughanJB I put your whole OP into the best AI I have found. This search tool has extensive resources to check to really study your subject. Here is it's take on your OP....

You're right to focus on the economic indicators rather than politics—these are measurable trends that deserve attention. The data you’ve highlighted does paint a concerning picture, and while it doesn’t necessarily mean an "epic disaster" is imminent, there are clear red flags that suggest significant economic strain ahead. Here’s a breakdown of the key risks:

### 1. **Consumer Debt Stress**
- **Car loans**: Delinquencies at multi-decade highs signal that households are struggling with even basic payments. Repossessions and voluntary surrenders are rising, which could eventually hit banks’ balance sheets (especially subprime lenders).
- **Housing**: The 22% rise in foreclosure filings is notable, though from historically low levels post-pandemic. The bigger risk is the "lock-in effect" (people unable to move due to low mortgage rates) and soaring prices squeezing new buyers.
- **Credit cards**: Debt levels are at record highs, and delinquencies are climbing, particularly among younger borrowers. This suggests disposable income is being eroded by inflation and high rates.

### 2. **Student Loans**
- The resumption of payments is pulling ~$70B/year out of consumer spending. While some borrowers can manage, others are sacrificing essentials or defaulting. Predatory lending (especially by for-profit schools) exacerbates the problem, but even "responsible" borrowers face high costs due to compounding interest.

### 3. **Fiscal Concerns**
- The U.S. debt downgrades (e.g., Fitch in 2023, Moody’s negative outlook) reflect worries about unsustainable deficits, not just absolute debt levels. The proposed tax cuts (if enacted) would worsen this, though their economic impact depends on how they’re structured.
- **Interest costs**: The federal government now spends more on debt service than defense or Medicare. Rising rates could make this even more oppressive.

### 4. **Broader Risks**
- **Labor market cracks**: While unemployment is low, job growth is slowing, and wage gains aren’t keeping up with inflation for many. The "vibecession" (public pessimism despite solid GDP) hints at inequality in who’s benefiting.
- **Commercial real estate**: Office vacancies and looming mortgage renewals (at higher rates) could trigger regional bank stress.

### Is a Crisis Inevitable?
Not necessarily—but the risks are accumulating. The U.S. economy has proven resilient, and the Fed could cut rates if things deteriorate. However, the longer-term trends (wealth inequality, debt burdens, fiscal unsustainability) aren’t being addressed structurally.

**What to watch**:
- A spike in unemployment (even to 5%) could tip the scales, as many households have no buffer.
- Bank stress from commercial real estate or consumer defaults.
- Whether inflation stays sticky, forcing the Fed to keep rates high.

Bottom line: The system isn’t collapsing tomorrow, but the pressures you’re noting are real—and without policy corrections, a harder landing becomes likely.

 

[Harry Le Hermit]

Are we heading to a disaster of epic proportions?

Yep. I stated my thoughts on another thread, since locked. There is literally no one in D.C. addressing the issue and what I thought was a last hope is about to go up in smoke.

 

[MACKTEXAS]

Yes, car loan delinquencies are rising at a rate not seen since 2009. For those who doubt that, see what Bankrate has to say.

Pending home sales are down 6.3%, per the National Association of Realtors . . . and the price increases we have seen on homes for the past several years are not sustainable, even if mortgage rates are lowered.

The OP says "Home foreclosure filings have increased by 22%" - Yes, some people have to choose between owning a car and owning a home. I'm seeing news reports of people having to live in their cars (lost their homes).

Under current federal policies, prices of imported steel and aluminum are scheduled to rise, costing more to build homes and factories, the latter of which are needed for manufacturing jobs in the USA. While manufacturing jobs may [or may not] return, wages for USA mfg. workers will be higher than wages of those who produce imported goods, so either way, costs can go nowhere but up.

Further, any manufacturing jobs that do return may be offset by jobs lost this year by current layoffs at the federal level and corporate layoffs which are rising -> see the list here.

The OP asks, "How worried are you about the economy, and the indicators of trouble ahead?", I see more inflation ahead, and likely a recession, which could be less severe than we think, or could be much worse than we know. Even renowned economists and Fed Chairman Jerome Powell are unable to forecast what lies ahead with the current mixed bag of economic uncertainties.

 

[Ted01]

@MACKTEXAS, I have a sneaking suspicion that much of the manufacturing that is supposed to be coming back to the US is going to be automated.
Of course, it's just speculation one my part, (and a friend's idea) but with the huge advances in the last decade or so in both robotics and AI, I kinda' think that it would be foolish for new built factories and such not to be... from an investors POV... idk.

Was wondering what others might think about that idea?

 

[MACKTEXAS]

@MACKTEXAS, I have a sneaking suspicion that much of the manufacturing that is supposed to be coming back to the US is going to be automated.
Of course, it's just speculation one my part, (and a friend's idea) but with the huge advances in the last decade or so in both robotics and AI, I kinda' think that it would be foolish for new built factories and such not to be... from an investors POV... idk.

Was wondering what others might think about that idea?

I'm not disagreeing with you concerning increased automation; just throwing this into the mix: automation may keep manufacturing costs down but unfortunately, it will not employ more of our citizens, which is the stated objective.

 

[StarSong]

Please please please - let's not get political in this thread. Whatever one thinks, we are where we are.

My question is - how worried are you about the economy, and the indicators of trouble ahead?

Car loan delinquencies are rising, hitting the highest levels in decades. Reports state that people handing the keys back to their lenders are high, and that these actions are not yet being reported to the banks bottom line. Home foreclosure filings have increased by 22% compared to a year ago, and an increasing number of people can no longer afford to keep up with payments.
Add into this, the student loan crisis. There are two sides to the argument, as always. On the one hand, people signed up for loans, and of course those loans need to be paid back. On the other side, many of these loans were at predatory levels of interest, and asking people to pay their loans will remove over a trillion dollars from consumer spending at a time when people are struggling.

In the mean time, credit agencies are marking the US down, and if the bills in play come to be, it is estimated that 2tr will be added to the national debt, with 600bn of tax cuts for the top 1% (apparently, the largest upward transfer of wealth in American history.)

Are we heading to a disaster of epic proportions?

Are these stats for the US, the UK, Europe, Canada, or ???

 

[Aunt Bea]

Beats me!

Every once in a while the economy gets a real ‘haircut’.

I try to tune out the noise and focus on my own situation.

A downturn in the economy doesn’t impact me as much as it does younger working people that are carrying significant debt and need good paying jobs to survive.

The thing that I refuse to believe in is some sort of zombie apocalypse.

I believe that we will always find a way forward, never bet against America or more importantly Americans.

“Only when the tide goes out do you discover who's been swimming naked.” - Warren Buffet

 

[StarSong]

Yes, I'm concerned, but like @Aunt Bea and many others on this forum, my financial situation is fairly secure. Paid off home, still working, retirement nest egg, no debt, low expenses.

I worry for young people and those who are financially insecure. During difficult economic times, they suffer the soonest and the most harshly.

If autos are being repossessed and home foreclosed on, a small silver lining will surely be a reduction in used car and home prices, both of which are now stratospheric. We saw this after the 2008 crisis.

Hard to know how all this will play out.

 

[Warrigal]

@MACKTEXAS, I have a sneaking suspicion that much of the manufacturing that is supposed to be coming back to the US is going to be automated.
Of course, it's just speculation one my part, (and a friend's idea) but with the huge advances in the last decade or so in both robotics and AI, I kinda' think that it would be foolish for new built factories and such not to be... from an investors POV... idk.

Was wondering what others might think about that idea?

I think your inference is very logical.

 

[Aunt Bea]

@MACKTEXAS, I have a sneaking suspicion that much of the manufacturing that is supposed to be coming back to the US is going to be automated.
Of course, it's just speculation one my part, (and a friend's idea) but with the huge advances in the last decade or so in both robotics and AI, I kinda' think that it would be foolish for new built factories and such not to be... from an investors POV... idk.

Was wondering what others might think about that idea?

I'm not disagreeing with you concerning increased automation; just throwing this into the mix: automation may keep manufacturing costs down but unfortunately, it will not employ more of our citizens, which is the stated objective.

Sadly, I see a trend towards more low paying jobs for drones that will be needed to feed and care for the ‘beast’ until it finds a way to get along without them.

In my area people are putting their hopes for the future on a new chip fab from the folks at Micron.

It will initially provide some good paying construction jobs.

Once in production there may be a few good paying management positions but the groundbreaking high level jobs will be in other facilities. Most of the jobs will be for worker bees in tyvek suits performing basic repetitive tasks.

I can’t imagine living a life like that.

 

[Fritz]

I am of course concerned but I figure I'll manage one way or another. As long as I don't end up homeless I think I'll be alright.

 

[smiley]

@VaughanJB I put your whole OP into the best AI I have found. This search tool has extensive resources to check to really study your subject. Here is it's take on your OP....

You're right to focus on the economic indicators rather than politics—these are measurable trends that deserve attention. The data you’ve highlighted does paint a concerning picture, and while it doesn’t necessarily mean an "epic disaster" is imminent, there are clear red flags that suggest significant economic strain ahead. Here’s a breakdown of the key risks:

### 1. **Consumer Debt Stress**
- **Car loans**: Delinquencies at multi-decade highs signal that households are struggling with even basic payments. Repossessions and voluntary surrenders are rising, which could eventually hit banks’ balance sheets (especially subprime lenders).
- **Housing**: The 22% rise in foreclosure filings is notable, though from historically low levels post-pandemic. The bigger risk is the "lock-in effect" (people unable to move due to low mortgage rates) and soaring prices squeezing new buyers.
- **Credit cards**: Debt levels are at record highs, and delinquencies are climbing, particularly among younger borrowers. This suggests disposable income is being eroded by inflation and high rates.

### 2. **Student Loans**
- The resumption of payments is pulling ~$70B/year out of consumer spending. While some borrowers can manage, others are sacrificing essentials or defaulting. Predatory lending (especially by for-profit schools) exacerbates the problem, but even "responsible" borrowers face high costs due to compounding interest.

### 3. **Fiscal Concerns**
- The U.S. debt downgrades (e.g., Fitch in 2023, Moody’s negative outlook) reflect worries about unsustainable deficits, not just absolute debt levels. The proposed tax cuts (if enacted) would worsen this, though their economic impact depends on how they’re structured.
- **Interest costs**: The federal government now spends more on debt service than defense or Medicare. Rising rates could make this even more oppressive.

### 4. **Broader Risks**
- **Labor market cracks**: While unemployment is low, job growth is slowing, and wage gains aren’t keeping up with inflation for many. The "vibecession" (public pessimism despite solid GDP) hints at inequality in who’s benefiting.
- **Commercial real estate**: Office vacancies and looming mortgage renewals (at higher rates) could trigger regional bank stress.

### Is a Crisis Inevitable?
Not necessarily—but the risks are accumulating. The U.S. economy has proven resilient, and the Fed could cut rates if things deteriorate. However, the longer-term trends (wealth inequality, debt burdens, fiscal unsustainability) aren’t being addressed structurally.

**What to watch**:
- A spike in unemployment (even to 5%) could tip the scales, as many households have no buffer.
- Bank stress from commercial real estate or consumer defaults.
- Whether inflation stays sticky, forcing the Fed to keep rates high.

Bottom line: The system isn’t collapsing tomorrow, but the pressures you’re noting are real—and without policy corrections, a harder landing becomes likely.

can you pass this on to as many people in high positions as you can ??

 

[bobcat]

The ways generally floated to reduce the deficit and the overall debt is:
1. Increasing taxes on the people (Tariffs are a classic disguised example)
2. Decrease spending (Which in our situation would require a chainsaw rather than a scalpel)
3. Economic growth outpacing spending (Which would only work if current spending remains constant)

All solutions are complicated because they have domino effects that trigger other problems.
There is one wild card that is going to shake up and re-shuffle the deck, and that is robotics and AI. It will rapidly change the economy as we know it. It should reduce the cost of goods dramatically due to the ability to work around the clock and increase productivity without the need for a wage or benefits. However, they will replace workers which will affect spending and the employment levels. It seems the way forward is going to be a rather bumpy road.

The way I see it is there is a great disparity of wealth in this country, and the rich don't take kindly to having it taken from them, but what if that's the wrong approach. What if the government compiled and widely publicized a "Our Heroes List" which would consist of businesses and individuals who would voluntarily contribute to paying down the debt. In exchange they would be recognized, and the public could be encouraged to shop and do business with those establishments. It could be a replacement for much of the expensive advertising businesses do. Besides, who doesn't like being a hero.

Granted, this sort of radical idea could only work if spending could be reined in with a plan to gradually get in lockstep with economic growth. If the debt could be reduced, less would be lost to interest which would benefit the economy. It's a crazy idea, but unless we can pull a magic rabbit out of a hat, I just don't see any way out of this mess that doesn't involve a lot of hardship for many individuals.

 

[Don M.]

If present economic conditions continue, it is just a question of time before the government has to Devalue the Dollar. If/When that happens, costs for most products will skyrocket, and put half of our population into poverty.

 

[Aunt Bea]

IMO it’s wrong to focus on the rich as the solution to all of our problems.

If this is truly a democracy, land of the free, etc… we should all be willing to have some skin in the game to solve our spending/debt problems.

In almost any program that you can name it should be possible to reduce spending by 5-10% and we should all be able to shoulder increased taxes of another 5-10% to slowly pull us out of this mess while still protecting the most vulnerable members of our society.

 

[StarSong]

IMO it’s wrong to focus on the rich as the solution to all of our problems.

If this is truly a democracy, land of the free, etc… we should all be willing to have some skin in the game to solve our spending/debt problems.

In almost any program that you can name it should be possible to reduce spending by 5-10% and we should all be able to shoulder increased taxes of another 5-10% to slowly pull us out of this mess while still protecting the most vulnerable members of our society.

Seems to me that middle and low income families have far more skin in the game proportionately than the super wealthy. Legislators construct tax law loopholes to shield themselves and their rich cronies/donors from taxes, while working stiffs pay through the snoot.

 

[Aunt Bea]

Seems to me that middle and low income families have far more skin in the game proportionately than the super wealthy. Legislators construct tax law loopholes to shield themselves and their rich cronies/donors from taxes, while working stiffs pay through the snoot.

I see it differently, the super rich in many cases use their wealth to invest/create jobs/opportunities for Americans.

IMO it is short sighted to transfer that wealth away from the private sector and into government where it will be spent to provide short term care for people instead of creating opportunities for them to care for themselves and their families.

I will always believe that it’s wrong to take what I have worked for and give it to someone else without my approval.

I’m definitely not a fan of wealth redistribution.

 

[garyt1957]

Back in early January I decided to buy anything I thought I would need for at least the next four years so that the negative impacts of inflation wouldn’t be so devastating for me personally.

Man, that's a lot of toilet paper!

 

[Harry Le Hermit]

If present economic conditions continue, it is just a question of time before the government has to Devalue the Dollar. If/When that happens, costs for most products will skyrocket, and put half of our population into poverty.

The issue is whether our lenders would allow such a move. Including our treasuries, there is $27.6 trillion in that belongs to entities outside the U.S. A devaluation of the dollar would certainly collapse the global economy... for years, if not decades. The world needs a strong dollar and spent the past 40 years making sure that happens.

 

[Teacher Terry]

Man, that's a lot of toilet paper!

. I live in a small condo so the items that I figured I wouldn’t need for the next four years if I bought them, were much larger items like clothes, iPhone and a new car. However, I did buy a years worth of paper products, cleaning products, Over-the-counter medications, toiletries, etc..