Yesterday I read that the student loan debt and auto debt added together is as big as the mortgage bubble was in 2008. One could say, though, that the student loans are fully backed by the U.S. federal government and so can’t default. But if the government is forced to backstop that debt, rather than default what is likely to happen is a “loss of confidence in the dollar” which acts like a credit score downgrade. And since the US and its citizens both are living on credit, a credit score downgrade translates to an immediate loss of income.
In addition to the student/loan/auto debt, we also have this: Dozens of states and cities are on the verge of default, as are places like Puerto Rico. Then there is the size of the already existing federal government debt. The next round of debt ceiling drama is coming up. The whole debt ceiling thing exists because years ago it was perceived (when the debt was much smaller than today) that the U.S. federal debt was becoming dangerously large.
Or can it become infinitely large? No, it can’t.
The US got away with QE3 in part by saying, oh, we’ll sop up (pay back) all that debt that we’re temporarily putting out there; and that is what they until now have still been saying, that when the economy catches on they will raise rates and start sopping it up. If it turns out, oh, they can’t do that and they have to put on a QE4 to monetize the equally as large as the 2008 mortgage bubble student loan/auto bubble, perhaps the investor won’t go for it. Or if they do, then perhaps when Puerto Rico or California default and the Fed tries to monetize that, the investor will balk. If the investor doesn’t balk then, what’s next? It’s not going to get smaller or go away. It only gets bigger. Can the Fed monetize Japan, or China
And even in the meanwhile while it isn’t blowing up, and it remains intact – it is not benign. It is not neutral, nor play money fun for everyone until the detonation. The whole time that the Fed is bailing out these things, that action is sucking the blood out of Main Street. That is why since 2008 stocks are up while wages are down.
Wall Street’s addiction to money injections is costing us all. And when Wall Street actually dies all that blood will be spattered everywhere, ruining whatever it touches.
Posted here by https://icliks.wordpress.com
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