And now it could be a bomb

$16.1 trillion: That’s the amount of American household debt, consisting primarily of mortgages to buy homes, that is today at risk due to a combination of rising inflation, rising interest rates, a rising cost of living, and lower prospects for a system revival.

searching for Federal Reserve Bank of New York explain it How debt reached an all-time high, exceeding 25% from 2008 levels, before the major crisis exploded with subprime mortgages, and keep growing for all years accommodative fiscal and monetary policies Accelerated by the pandemic and abruptly ended by the Federal Reserve in recent months, with its first rate hike.

The increase since the beginning of the year amounted to more than 200 billion dollars, that is, since the beginning of 2020 by up to two thousand billion: Money transfer operated by Donald Trump And the Joe Biden With the influence of citizens’ fiscal policy to halt a pandemic recession and the long accommodative policies of the Federal Reserve’s purchase of securities, it has created a mixture of resource availability and easy rates like pushing Americans into a new race for the bubble. To pull it off, in the first place, real estate market. Of these 16,100 billion, 71%, which is equivalent to 11.431 billion related debt real estate loansby 27% from January 2020 to today (+2.4 trillion) due to higher housing prices.

Housing and mortgage prices are rising It has made it nearly impossible for many Americans to buy a home. And although the market is starting to show signs of slowing, many potential buyers will remain on the sidelines for now,” the economist wrote. Orphe Divounguy on the CNN website. “Although it is down slightly from the peak of 5.81% reached earlier this year, Mortgage rates They almost doubled from the start of the year. Combined with rising home prices, typical home loan payments in the country have increased by about 60% from last year, volatile Easy access to housing To the At least fifteen years old to this part in June.” The effect of commodity prices, adding to the inflation spiral, is sure to affect the market. The fact is that the first signs of a slowdown have arrived: Construction plans for new homes It fell 6.3% in June compared to a year ago, and those that symbolize single-family homes, whose ownership is the historical emblem of an American dream that belongs in the country’s rhetoric, fell 11.4%.

link between An increase in debt burdens and a decrease in construction It’s a bad sign of a slowdown and, therefore, lower debt sustainability for those who have incurred it in the context of declining economic expansion. And after the pandemic flattened, the headline rate of bankruptcy mortgage debt, the Federal Reserve notes, rose to 2% of the total.

But the default rate is rising everywhere. Among auto loans, 5% of the total private US debt, and 6% of the principal are attributable to people who have washed out at least one installment for 30 days; On credit card debt, in turn at 5% of the debt, that percentage is 4%.

Those who have been saved, for the time being, are pregnant study debts, equal to 10% of the capital topic of analysis. Before the pandemic, 10% of student debt, which exceeded $1 trillion, was at risk of default. The Trump administration has frozen emergency period payments. The Biden administration went even further in the spring by announcing new measures to help millions of people obtain student debt relief, prompting 3.6 million borrowers to spread their debt over longer periods thanks to Forgiveness of a loan for three years As many as 700,000 of the 43 million student loan borrowers are seeing debt cancellation, taken out by the federal government for a total of more than $17 billion. Bankruptcy, so far, is limited to 1%. But how long can this dynamic continue, without structural reform that gives students greater safety?

Overall, the picture seems to illustrate the context in which private debt is once again becoming a burden, rather than a driving force for development, on Americans. Federal Reserve Bank write the financial times, It is expected to raise interest rates between 0.5 and 0.75 percentage points at the next meeting in September. Evidence of a slowdown in the world’s largest economy – the second consecutive quarter of GDP contraction reported in July – initially prompted investors to bet that the Fed would slow the pace of interest rate hikes in September after two increases in September. 0.75 percentage points in June and July.”

However, “the strong employment report released last Friday shows that continuing wage increases across all sectors have altered expectations for the time being.” While the number of public defaults at present does not exceed the warning level, attention should be paid to borrowers and loan holders belonging to the The poorest sectors of the population, today’s version of the “sub-prime mortgage” in the early 2000s. For the financialization of the system, the limitations associated with the rapid transformation of the subject into insolvency and due to the lack of social networks, it does not take much for the problem to spread like wildfire. In the Republicans In the Democrats They seem to have a problem that may be a direct result of the country’s choices about inflation and rates. But the issue of debt relief for middle and poor Americans already burdened with uncertainty, high cost of living and inequality will soon come to light in all its cruelty. It would be impossible to ignore.