Financial regulation is set to be watered down, the US economy is booming, the stock market is soaring. It’s all good, right? Well, maybe there is a major problem brewing, and its problem that those with memories of 2008 will be all too familiar with.Household debt in the US now stands at $12.58 trillion, and rose by just over a quarter of a trillion dollars in the last quarter of 2016, the biggest increase in ten years.
It’s not a record, that stands at $12.68 trillion, a record that was set in 2008. US student loan debt soared by $31 billion, and is now worth $1.31 trillion – unless those with student loans can find well paid jobs, that is a millstone around many necks, alright.
There is no reason to panic yet. US household debt to GDP is lower today than in 2008. In the last quarter of last year, delinquent levels were at 4.8 per cent of debts, compared to 8.5 per cent in 2008.
But then, maybe it is misleading to compare the situation today with 2008, better perhaps to compare with 2006, when household debts were much lower than they are today, but were rising.
It is not the level of US household debt today that is the issue, it is the speed with which it is increasing.
Demand for junk bonds is soaring too. In December last year alone, the markets threw no less $10 billion at junk bonds.
2021 may be the point when it all goes horribly wrong, that is the year when no less than one trillion dollars of junk bonds mature.
And there is a reason why they are called junk bonds. Investors are chasing the higher yields payable on these bonds just as they once chased the higher yields on subprime mortgages.
As Fed chair, Janet Yellen, pointed out this week, US banks do not seem to be too badly hampered in their lending by regulation.
Wall Street is currently celebrating by buying stocks, thanks to the prospect of the President Trump government severely watering down the Dodd Frank Act, the Act passed in 2010, and advanced by President Obama to try and avoid a repeat of the 2008 debacle.
But here is your question for the day?
Is watering down on financial regulation at a time when debt is shooting up at a pace that conjures memories of the build-up to the 2008 crisis a good idea?
But there is some good news for President Trump, the junk bonds wall does not set in until after the next US election.