Signs that people are beginning to default on debt. This could be an indication of a looming recession, as the U.S. economy finally begins to "unwind". Not really too unexpected, considering so much of this buying was being fueled by debt. Home foreclosures are on the upswing nationwide Home foreclosures up 34% from same time last year, which includes default notices, scheduled auctions and bank repossessions -- surged 28% in the third quarter to 124,539. The report also indicated that there were 37,679 properties with foreclosure filings in September -- up 11% from the previous month and up 18% from 2022. Although foreclosures are on the rise, they remain well below the levels recorded during the 2008 financial crisis. Foreclosure starts are nearly back to where they were two years ago when the federal government lifted a pandemic-related moratorium on most foreclosure filings. This rise in foreclosures might also be attributed to pending filings finally processing. The hit comes at an already precarious time for the housing market, thanks to the astronomic rise in mortgage rates over the past year. In fact, housing affordability is worse today than during the peak of the 2008 housing bubble. Home foreclosures are on the upswing nationwide, Megan Henney, Fox News (Business), October 17, 2023 Americans Are Overdue With Their Car Payments At Highest Rate In Nearly 30 Years Higher car prices and rising interest rates are hindering car owners’ ability to afford their vehicle payments, as 6.1% of subprime auto borrowers are at least 60 days past due on their loans, the highest percentage in data dating back to 1994, according to Bloomberg, which cited Fitch Ratings. Margaret Rowe, a senior executive at Fitch, said subprime borrowers can be the first indication of where we start to see the negative effects of macroeconomic headwinds. Interest rates for used cars are 13.5% on average for those with fair credit but can rocket up to around 21% for those with the worst credit. Americans Are Overdue With Their Car Payments At Highest Rate In Nearly 30 Years, by Antonio Pequeño IV, Forbes, October 21, 2023 older related threads: Unable to afford homes, Americans dive into subprime auto debt In 4 years, home prices increased 69%, car prices 31% I predict we might also begin to see an uptick in defaults on student loan debt. The Biden Administration postponed payments on student loan debt, but that cannot continue forever and set to stop soon. There are already signs that the "College Education Bubble" has begun to burst. related threads: Why fewer Americans are going to college A Master's degree may not be financially worthwhile anymore Market analysts are also expecting defaults on commercial real estate loans in the next one to three years. Especially from office buildings in mid-sized cities that have less wealth. About 10 to 15% of total bank loans are on commercial real estate. Currently many of these buildings sit partially abandoned. I think it is because many medium-sized businesses have been trying to cut costs because their profits are down, but also because remote work has become more common, where office workers work in their own homes and communicate through computer. Renting actual space in a building is expensive.
So what do you think the Fed has done that caused this problem? Keeping rates too low for too long, resulting in over-stimulating of the economy and a bubble forming? Causing too much inflation? Maybe you think that Fed should have continued to hold down interest rates, even though that was beginning to rapidly contribute to inflation?
raised interest rates to lower wages after Covid, Covid caused a supply issue, which raised costs, the FED raised interest rates to keep people from having money to spend, which cause business to keep prices high after supply issues started to dissipate foreign outsourcing is not helping either, many corps are turning more and more towards that after learnign employees could work from home... that meant they could outsource those jobs
Don't you think "raising interest rates" actually raised wages from what they would have been otherwise? Because "raising interest rates" actually involved the Fed not doing something; and "keeping interest rates down" would involve printing more money, causing more inflation, which of course would eat into wages. So it seems you want more consumer spending fueled by debt? With the Fed lowering interest rates, what they were essentially doing was subsidizing the cost of consumer borrowing by printing more money. That of course just ends up shifting the inherent cost of that borrowing onto someone else in the economy. What a lot of people don't understand is that there is no "free money" in the economy. The Fed can't simply magically just make a loan to allow people to spend now and pay later, circumventing that need for any interest payments or costs associated with that borrowing. Economics does not work that way.
I'm unclear on why you think that the Fed had anything to do with businesses keeping prices high. It doesn't seem to make logical sense and I'm unable to follow your train of reasoning, if there is one.
The Fed was paying to subsidize the cost of borrowing, with inflation. So I do not think low interest rates kept prices low (overall, if we step back and look at the bigger picture). There is an intrinsic economic cost to borrowing money now and paying in the future. You can't just eliminate that cost in the economy; it will manifest somehow. Businesses could always get loans from the private sector but the issue is entirely about the cost of those loans, the interest rates. I don't think the situation would have really been economically different if the Fed just handed free money to every business that had borrowed money. Economically equivalent I think.
Someone pays for it when the Fed dumps money. It creates an inflationary effect. Even if we don't actually see inflation happen at the time, I think it is only because that inflationary effect is canceling out another deflationary effect that was caused when the housing market imploded and money disappeared from bank balances when so many loans defaulted. I do think the economy would not be in the state it is now in, or things might not be quite as bad, if the Fed had not kept interest rates so low for so long. Many economists don't really believe it's healthy to do that. Using monetary policies to constantly stimulate the economy.
I do agree, the FED dumping trillions into the economy right before Covid hurt us then raising interest rates to lower the rising costs due to the supply issues due to changing buying patterns caused by Covid did not help
Just a small price to make sure Trump did not get reelected, right? (We all know many Democrat activists wanted state governors to shut down businesses to crash the economy to hurt Trump's chances of reelection, using pandemic restrictions as the excuse) But how long will you keep being able to blame Covid? It's now been a full year since the very last remaining Covid restrictions have been lifted. Two and a half years since restaurants were allowed to reopen. I suspect you'll just try to find something to blame, whether it's Covid, (the conflict in) Ukraine, or "greedy big corporations".
Consumers have been propping up the U.S. economy when no one else could -- now the debts are being called and they can't pay their bills The U.S. economy remained resilient in the aftermath of the pandemic thanks to Americans’ sheer will to spend--but debts are ticking upward, and many are running out of cash reserves to pay their bills. According to a report published by the Federal Reserve Bank of New York on Tuesday, Americans now collectively owe $1.08 trillion on their credit cards--the highest amount ever documented. In the three months to the end of September, credit card balances increased by 4.7%--or $48 billion--the report revealed, marking the biggest quarterly leap in credit card debt since the records began in 1999. The Consumer Financial Protection Bureau found that credit card companies had charged consumers a record high of $130 billion in interest and fees in 2022, and the average minimum payment due on credit card bills rose to $100 a month. Consumers are indeed struggling to meet their credit card repayments, the New York Fed’s report showed, with delinquency rates on the rise. When real interest rates rise or the prices of goods rise faster than wages, consumers will face difficulty repaying existing balances without either cutting expenses or receiving a windfall. A growing reliance on credit cards--and difficulties paying balances back--could spell trouble for the wider U.S. economy. Much of the consumer spending is being paid for through debt. "Consumers' debt burden and rising housing costs will constrain consumer spending," economists at Deloitte wrote in a September update. Data from the U.S. Bureau of Economic Analysis shows that the personal saving rate--which measures how much of their disposable income Americans are saving--has been steadily declining in recent months, falling to 3.4% in September. In April 2020, it hit an all-time high of 32%. Citigroup CEO Jane Fraser told CNBC in September that "cracks" were emerging among some consumers as their savings dissipated. Consumers have been propping up the U.S. economy when no one else could -- now the debts are being called and they can't pay their bills, Fortune (magazine), Chloe Taylor, November 8, 2023
