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Debt Apocalypse Beckons As U.S. Consumer Bankruptcies Do Something They Haven’t Done In Almost 7 Years February 5, 2017

Bankrupt - Public DomainWhen debt grows much faster than GDP for an extended period of time, it is inevitable that a good portion of that debt will start to go bad at some point.  We witnessed a perfect example of this in 2008, and now it is starting to happen again.  Commercial bankruptcies have been rising on a year-over-year basis since late 2015, and this is something that I have written about previously, but now consumer bankruptcies are also increasing.  In fact, we have just witnessed U.S. consumer bankruptcies do something that they haven’t done in nearly 7 years.  The following comes from Wolf Richter

US bankruptcy filings by consumers rose 5.4% in January, compared to January last year, to 52,421 according to the American Bankruptcy Institute. In December, they’d already risen 4.5% from a year earlier. This was the first time that consumer bankruptcies increased back-to-back since 2010.

However, business bankruptcies began to surge in November 2015 and continued surging on a year-over-year basis in 2016, to reach a full-year total of 37,823 filings, up 26% from the prior year and the highest since 2014.

Of course consumer bankruptcies are still much lower than they were during the last financial crisis, but what this could mean is that we have reached a turning point.

For years, the Federal Reserve has been encouraging reckless borrowing and spending by pushing interest rates to ultra-low levels.  Unfortunately, this created an absolutely enormous debt bubble, and now that debt bubble is beginning to burst.  Here is more from Wolf Richter

The dizzying borrowing by consumers and businesses that the Fed with its ultra-low interest rates and in its infinite wisdom has purposefully encouraged to fuel economic growth, if any, and to inflate asset prices, has caused debt to pile up. That debt is now eating up cash flows needed for other things, and this is causing pressures, just when interest rates have begun to rise, which will make refinancing this debt more expensive and, for a rising number of consumers and businesses, impossible. And so, the legacy of this binge will haunt the economy – and creditors – for years to come.

Despite all of the economic optimism that is out there right now, the truth is that U.S. consumers are tapped out.

If the U.S. economy truly was doing great, major retailers would not be closing hundreds of stores.  Sears, Macy’s and a whole host of other big retailers are closing stores because those stores are losing money.  It truly is a “retail apocalypse“, and this trend is not going to turn around until U.S. consumers start to become healthier financially.

We also see signs of trouble in the auto sales numbers.  Compared to 2016, sales were way down in January this year

Compared to January last year, car sales collapsed for all three US automakers, and the largest Japanese automakers didn’t do much better:

  • GM -21.1%
  • Ford -17.5%
  • Fiat Chrysler -35.8%
  • Toyota -19.9%
  • Honda -10.7%
  • Nissan -9.0%

For all automakers combined, car sales sagged 12.2% from a year ago.

A lot of attention is given to our 20 trillion dollar national debt, and rightly so, but a similar amount of attention should be paid to the fact that U.S. households are collectively more than 12 trillion dollars in debt.

About two-thirds of the nation is essentially living paycheck to paycheck.  Most families really struggle to pay the bills from month to month, and all it would take is a major event such as a job loss or a significant illness to plunge them into financial oblivion.

In America today we are told that the secret to success is a college education, but most young Americans have to go deep into debt to afford such an education.

As a result, most college graduates start out life in the “real world” with a mountain of debt.  And since many of them never find the “good jobs” that they were promised, repayment of that debt becomes a very big issue.  In fact, the Wall Street Journal has discovered that student loan repayment rates are much worse than we were being told…

Last Friday, the Education Department released a memo saying that it had overstated student loan repayment rates at most colleges and trade schools and provided updated numbers.

When The Wall Street Journal analyzed the new numbers, the data revealed that the Department previously had inflated the repayment rates for 99.8% of all colleges and trade schools in the country.

The new analysis shows that at more than 1,000 colleges and trade schools, or about a quarter of the total, at least half the students had defaulted or failed to pay down at least $1 on their debt within seven years.

If you do find yourself deep in debt, a lot of families have found success by following a plan that was pioneered by author Dave Ramsey.  His “Debt Snowball Plan” really works, but you have to be committed to it.

Getting out of debt can be tremendously freeing.  So many people spend so many sleepless nights consumed by financial stress, but it doesn’t have to be that way.

Most of us have had to go into debt for some reason or another, and not all debt is bad debt.  For example, very few of us would be able to own a home without getting a mortgage, and usually mortgages come with very low interest rates these days.

But other forms of debt (such as credit card debt or payday loans) can be financially crippling.  When it comes to eliminating debt, it is often a really good idea to start with the most toxic forms of debt first.

It has been said that the borrower is the servant of the lender, and you don’t want to spend the best years of your life making somebody else rich.

Whether economic conditions turn out to be good or bad in 2017, the truth is that each one of us should be trying to do what we can to get out of debt.

Unfortunately, a lot of people never seem to learn from the past, and I have a feeling that both consumer and commercial bankruptcies will continue to rise throughout the rest of this year.

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Generation Snowflake: Percentage Of Young Adults Living With Their Parents Hasn’t Been This High Since 1940 December 21, 2016

snowflake-public-domainHave we failed this generation of young adults by not equipping them to be able to handle the harsh realities of the real world?  According to the Wall Street Journal, the percentage of Americans in the 18 to 34-year-old age bracket that are currently living with their parents hasn’t been this high in 75 years.  At this point nearly 40 percent of our young adults in that age range are living at home, and many are concerned that this could have some alarming implications for the future of our nation.

In the United States today, more than 60 million people live in multi-generational households, and it is a good thing to have a tight family.  But at some point young adults need to learn how to live their own independent lives, and in millions of cases this independence is being delayed or is never happening at all.

There are many factors involved in this trend.  First of all, there is truly a lack of good jobs despite what we are being told about an “economic recovery”.  Millions of young adults are graduating from college only to discover that there is a very limited number of good jobs available for our college graduates.  So some college graduates are able to secure the types of jobs that they were hoping for, but millions of others are not.

Normally when a recession ends, the percentage of young adults living with their parents starts to go back down.  But this has not happened this time around.  Instead, the percentage of young adults that live at home has just continued to rise

The trend runs counter to that of previous economic cycles, when after a recession-related spike, the number of younger Americans living with relatives declined as the economy improved.

The result is that there is far less demand for housing than would be expected for the millennial generation, now the largest in U.S. history. The number of adults under age 30 has increased by 5 million over the last decade, but the number of households for that age group grew by just 200,000 over the same period, according to the Harvard Joint Center for Housing Studies.

Another major factor in all of this is the fact that Americans are getting married later in life than ever before and they are having fewer kids than previous generations.

In the old days, people got married young and they set up their own households even if they were dirt poor.  But these days we have hordes of single young adults that are perfectly content to sit at home and sponge off of Mommy and Daddy.

There seems to be a real lack of toughness to this generation of young adults, and many that have perceived this lack of toughness have resorted to referring to them as “Generation Snowflake”.  Over the past 12 months this term has become so common that the Guardian has dubbed it “the defining insult of 2016″…

Until very recently, to call someone a snowflake would have involved the word “generation”, too, as it was typically used to describe, or insult, a person in their late teens or early 20s. At the start of November, the Collins English Dictionary added “snowflake generation” to its words of the year list, where it sits alongside other vogue-ish new additions such as “Brexit” and “hygge”. The Collins definition is as follows: “The young adults of the 2010s, viewed as being less resilient and more prone to taking offence than previous generations”. Depending on what you read, being part of the “snowflake generation” may be as benign as taking selfies or talking about feelings too much, or it may infer a sense of entitlement, an untamed narcissism, or a form of identity politics that is resistant to free speech.

The phrase came to prominence in the UK at the beginning of 2016, after Claire Fox, director of the thinktank Institute of Ideas, used it in her book I Find That Offensive to address a generation of young people whom she calls “easily offended and thin-skinned”.

Of course there are exceptions.  I have some close friends that are young adults in this age range, and they are extraordinary people.

But overall, we seem to have dramatically failed this generation.  Maybe it is because we tend to baby our children from a very early age, and we want to protect them from danger so much that we never allow them to be exposed to the challenges that they need to face in order to toughen up and mature.

And it certainly doesn’t help that many of our young adults enter “the real world” already drowning in tens of thousands of dollars of debt.  According to CNN, about 70 percent of all college graduates in the U.S. will leave school with student loan debt, and the average loan balance for those college graduates is approximately $28,950.  Paying off student loan debt can be extremely painful, and it can be financially crippling for young people that are just trying to start their new lives.

When our high school kids are looking toward the future, we very much encourage them to go to the very best schools that they can possibly get into, and we tell them to not even worry about the cost.  We promise them that there will be plenty of good jobs once they graduate, and we push them into these loans without even warning them to consider the future implications.

According to a stunning article in the Wall Street Journal, many Baby Boomers are actually having money taken out of their Social Security checks because of unpaid student loans.  So when you go into student loan debt, it can literally haunt you for the rest of your life…

The government has collected about $1.1 billion from Social Security recipients of all ages to go toward unpaid student loans since 2001, including $171 million last year, the Government Accountability Office said Tuesday. Most affected recipients in fiscal year 2015—114,000—were age 50 or older and receiving disability benefits, with the typical borrower losing about $140 a month. About 38,000 were above age 64.

The report highlights the sharp growth in baby boomers entering retirement with student debt, most of it borrowed years ago to cover their own educations but some used to pay for their children’s schooling. Overall, about seven million Americans age 50 and older owed about $205 billion in federal student debt last year. About 1 in 3 were in default, raising the likelihood that garnishments will increase as more boomers retire.

What we are doing is clearly not working, but I am not particularly optimistic that this system will be fixed any time soon.

If you are a young person, you need to have a solid plan before pursuing an expensive college education.  Many young people just major in anything that they want without even considering if it will lead to a good career.  And instead of working hard to graduate in four years, many decide that they want to stretch the “college experience” out for five or six years so that they can party as much as possible before entering the real world.

The real world is a cold, cruel place, and if you start your new life drowning in debt that is just going to make things even more difficult for you.

On a personal note, I want to thank everyone that has supported the growth of The Most Important News.  It is a central news hub where you can find all of my articles, posts by incredible guest authors and many of the key news stories from all over the globe all gathered in one place.  Some technical issues have forced the site to be down for extended periods of time lately, but now it is being migrated to a much more powerful server.  I will not be updating it during the migration, but I should resume a normal posting schedule again very soon.

And I would like to thank all of my readers for making 2016 an absolutely amazing year.  I love you all, and I wish you all the very best as we head into what should prove to be a very “interesting” 2017.

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The Shocking Truth About How Barack Obama Was Able To Prop Up The U.S. Economy December 2, 2016

barack-obama-looking-into-a-mirror-public-domainBarack Obama is one of the biggest “Keynesians” of all time, but unfortunately most Americans don’t even understand what that means.  In this article, I am going to share with you the primary reason why Barack Obama has been able to prop up the U.S. economy over the past eight years.  If Barack Obama had not taken the extreme measures that he did, we would be in the midst of a historic economic depression right now.  But by propping things up in the short-term, he has absolutely demolished our long-term economic future.  But like most politicians, Obama has been willing to sacrifice the future for short-term political gain.

If you take any basic college course in economics, you are going to learn about John Maynard Keynes.  Without a doubt, Keynes was one of the most famous economists of the 20th century, and one of the things that he believed was that governments should go into debt and spend more money when an economic downturn strikes.  By injecting additional funds into the economy during a time of crisis, he believed that the severity of recessions and depressions could be reduced.  This approach ultimately become known as “Keynesian economics”, and in the post-World War II era virtually the entire world embraced it at least to some degree.  Here is more on Keynes from Investopedia

An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed by the British economist John Maynard Keynes during the 1930s in an attempt to understand the Great Depression. Keynes advocated increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the Depression. Subsequently, the term “Keynesian economics” was used to refer to the concept that optimal economic performance could be achieved – and economic slumps prevented – by influencing aggregate demand through activist stabilization and economic intervention policies by the government. Keynesian economics is considered to be a “demand-side” theory that focuses on changes in the economy over the short run.

Keynesian economists correctly point out that there is a “multiplier effect” to government spending.  In other words, when the government spends money it ends up in the hands of ordinary people.  In turn, those people spend that money on various goods and services that they need, thus boosting overall economic activity.  And the more the money circulates, the more the economy is stimulated.  So one dollar of additional government spending does not just add one dollar to GDP.  Rather, the impact on GDP is often significantly greater than that.

Of course the bad news is that whenever the government borrows money it is stealing consumption from the future.  So we are literally destroying the future that our children and our grandchildren were supposed to have in order to make the present look a little bit brighter.

When Barack Obama entered the White House, the U.S. was in the midst of the worst financial crisis since the Great Depression.  The Bush administration had already begun to ramp up spending, but Barack Obama took “government stimulus” to ridiculous new levels.  The national debt has risen by an average of more than 1.1 trillion dollars a year while Obama has been in charge, and this fiscal year we are on pace to add more than 2 trillion dollars to the debt.

At this moment, the U.S. national debt is a whopping $19,901,545,151,126.51, and it will cross the 20 trillion dollar mark by the time Donald Trump is inaugurated on January 20th.

But when Barack Obama was inaugurated, the national debt was only 10.6 trillion dollars.  That means that we have added about 9.3 trillion dollars to the debt since that time.

So we have borrowed and spent 9.3 trillion dollars under Obama that we did not have.  But because of the “multiplier effect”, that 9.3 trillion dollars actually had a far greater impact on the U.S. economy.

Let’s be conservative and just double that number.  So that would give us an 18.6 trillion dollar overall impact on U.S. economic activity.  Spread over eight years, that comes to an average GDP impact of 2.325 trillion dollars a year.

But over the last eight years U.S. GDP has only been averaging about 16 trillion dollars a year.  So if you took away 2.3 trillion dollars a year, that would be about one-eighth of our entire economy.

In other words, without all of this debt that Barack Obama and Congress have been getting us into, we would be in the worst economic depression in U.S. history right now.

And I haven’t even factored in state and local government debt, corporate debt or household debt.  The truth is that I am not exaggerating one bit when I say that we are enjoying a debt-fueled standard of living that we simply do not deserve.

But even with all of this debt, the U.S. economy has still not been performing really well.  In fact, Barack Obama is going to be the only president in U.S. history to not have a single year when U.S. GDP grew by at least three percent.

Despite what many in the mainstream media are telling you, the reality of the matter is that Donald Trump is going to inherit an economy that is deeply troubled.  If you doubt this, please see my previous article entitled “11 Very Depressing Economic Realities That Donald Trump Will Inherit From Barack Obama“.

Donald Trump is talking about cutting taxes and reducing regulations, and all of those things are good, but ultimately those measures are not going to matter that much.

What is going to matter is what Donald Trump decides to do about our exploding debt.

If Donald Trump wants the U.S. economy to continue to remain at least somewhat stable in the short-term, he is going to have to keep piling up debt like Obama has.  Because if Trump and the Republicans decide that they want to get our debt under control, that will plunge us into a horrifying economic depression almost immediately.

But if Donald Trump continues to steal money from future generations of Americans at the same pace that Barack Obama has been doing, he will literally be destroying the future of America.  It will be a crime on a scale that is almost beyond words, and if they get a chance to do it, future generations of Americans will look back and curse him for what he has done to us.

So Donald Trump is really in a no-win situation when it comes to the economy.

The only way that he can match Obama’s performance is to do what Obama did, but by doing so he would literally be killing the future.

As a nation we have been consuming far more wealth than we produce for a very, very long time, and the only way that we have been able to do this is because we have been able to go into so much debt.

But now a day of reckoning is fast approaching, and I am not sure if Donald Trump even realizes that he will soon be faced with some incredibly heartbreaking choices.

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