Student Loan Delinquencies - Next Recession Trigger?

[Gilberto de Piento]

The next recession trigger? https://www.bloomberg.com/news/articles ... 66-billion

Student-loan delinquencies surged last year, hitting consecutive records of $166.3 billion in the third quarter and $166.4 billion in the fourth.

Bloomberg calculated the dollar amounts from the Federal Reserve Bank of New York’s quarterly household-debt report, which includes only the total owed and the percentage delinquent at least 90 days or in default.

That percentage has remained around 11 percent since mid-2012, but the total increased to a record $1.46 trillion by December 2018, and unpaid student debt also rose to the highest ever.

[Campitor]

I believe students defaulting on loans will increase and it will be one of many bad fiscal behaviors to trigger a recession. You can't keep borrowing money and kicking the can down the road regardless if you're a student or a government.

[prognastat]

And then there's also car loan debt on the rise.

[Jason]

I agree with prognastat. i think car loans is more indicative. If a household has a mortgage, a car loan, and a student loan, student loan will always be paid last. Car loan delinquency is most likely first in most instances, because no car = no job, which means no house, and no other debt repayment. Car can also in desperate times double as home.

https://www.washingtonpost.com/business ... c5b898e8eb

[jacob]

Worries about car loans (and student loans) go back to at least just a couple of years following the credit crisis. That said, the companies popping up on my screens have a significant fraction of car part supplies (e.g. companies that makes headlights, rearview mirrors, that sort of thing). Whatever it is, the market does not believe that consumers are about to go on a [car] buying spree.

[classical_Liberal]

@jason
Or it could just mean that lending/underwriting standards for subprime car loans have been significantly loosened. This is essentially what caused the subprime mortgage loan crisis. Lending standards were dropped as a direct result of Freddie and Fannie lowering qualifying criteria for mortgages. This happened under pressure from the Federal government who wanted to get more low income people into homes (statistics show that's how you create wealth in the US ) .

Anyway, I'm not sure if that's the case because I haven't been in consumer banker for a decade. It's just a possibility that a bunch of people have car loans that should never have been given loans vs an indication of other macroeconomic problems. Albeit, if this is the issue, the defaults and repo's will have second order negative effects on the economy.

[Mister Imperceptible]

I paid off all $175k of them, just in time for AOC and Elizabeth Warren to have them all forgiven.

[Campitor]

Whatever it is, the market does not believe that consumers are about to go on a [car] buying spree.

Car sales will only get worse. Baby boomers started hitting retirement in 2011 and those retiree numbers get scarier each year - these guys are not going to be buying new cars or even used cars. They are going to ride their existing cars into the ground. The reduced purchasing power of the baby boomers is going to hit the economy hard as their retirement numbers grow. The strain on SS and medicaid/medicare is going to blow all existing budgets. And all those health and insurance policies are going to get exercised more and more. It's will be increasingly turbulent as we progress towards 2030.

[Mister Imperceptible]

Crisis Building in the Auto Sector / Real Vision

[Mister Imperceptible]

I was recently dating a woman who had over $100k in student loan debt. She had a degree in library and information sciences. As a librarian, even is she got some fabulous job working for the Library of Congress, she was looking at a max potential income of maybe $50k a year. She said that the only way for her to pay off her debts was government intervention. Which I suppose is not unreasonable, considering the government should not be in the business of guaranteeing student loans and making them unforgivable, incentivizing colleges to jack up tuitions.

This woman also gave, early on, the implicit ultimatum that if she were not pregnant within 2 years, she would opt for artificial insemination and single motherhood. We are no longer dating. The attitude of this woman is fairly typical of my millennial “peers.”

Just in case you needed more incentive to (ahem) avoid buying financial securities linked to unsustainable debt binges (cough) and instead purchase real assets (cough cough) that might profit from an enormous debt monetization (hack, vomit).

[Toska2]

Student loans are a funny thing. The recourse is gouged wages and government intervention. There is no "product" aka cars and housing to repo and flood the market, driving down prices and shuttering factories. People may muddle through a lower economic growth but will it be enough for a recession? Housing is peculiar because its "cost" is considered "worth", not " true value". As one could see the "worth" sink due to a flooded market it incentivized those who paid the "cost" to walk away. Developers also decided that it was more profitable to build expensive, driving up "cost".

In regards to cars.
@Jacob
Car parts have gotten more expensive. My Chevy Blazer had those glass block lights @$15. Any 2008+ clear plastic light is $125-$300. Mirrors with turn signals start at $500, non motorized regulars are $50. Any fender can be cheaper after market carbon fiber vs stock metal & painted. Engines went from $2500 (dodge or chevy 5.7) to $20,000 for ford's 6.7 diesel.

@ everyone
The auto sector has a "never lower prices" policy. Thats why there's incentives, cash backs, rebates and flexibility on buybacks. Can anyone please find data on this trend?

I think the next recession will be two pronged. Boomers (65-70) will buy one more auto which gets us to 2025. After 70 their health will take a serious down turn forcing auto and home sales. Gen X and early Gen millennials will already be established elsewhere and offload the house. This will hurt rural and small towns worse. The Boomers jobs will be long taken/gone, not allowing a new generation to fill both postitions. My analogy is trying to put your pants on, one leg in the morning and the other at noon. That last pants leg is going to drag, drag house prices right down.

!!! If I may put my tinfoil hat on now. A disruption in diabetic medicine is a quick way of reducing future medicial costs. I wouldn't put it past our government to manufacture an event.

[arcyallen]

You can't keep borrowing money and kicking the can down the road regardless if you're a student or a government.

I used to think this too, then I read Warren Buffet talk about how the national debt -is- sustainable. I hated to even contemplate it, but I think it's true. Making slowly growing interest-only payments is painful and makes me angry to even think about, but could go on for a long...long...long time.

As for student loans, I don't know many students who are "aggressively paying down debt". I do know a few with shiny cars and big house(s), though.

[Kriegsspiel]

I used to think this too, then I read Warren Buffet talk about how the national debt -is- sustainable. I hated to even contemplate it, but I think it's true. Making slowly growing interest-only payments is painful and makes me angry to even think about, but could go on for a long...long...long time.

As for student loans, I don't know many students who are "aggressively paying down debt". I do know a few with shiny cars and big house(s), though.

To take the other side of the argument, it seems true if you assume his can opener, which is that people will continue to loan us money. People continue to loan us money because we have a great trait stack (to corrupt Scott Adams phrase):

Laws
Military dominance
Productivity
Technological prowess
Control of natural resources

and he "doesn't see that changing unless we do something incredibly foolish." Hello Green New Deal.

[Smashter]

This woman also gave, early on, the implicit ultimatum that if she were not pregnant within 2 years, she would opt for artificial insemination and single motherhood. We are no longer dating. The attitude of this woman is fairly typical of my millennial “peers.”

Whoa. Not to derail too much, but I am a millennial and I have never met anyone with that attitude. I've never even heard rumors of someone like that. Is artificial insemination + single motherhood a thing now?

[Campitor]

To take the other side of the argument, it seems true if you assume his can opener, which is that people will continue to loan us money. People continue to loan us money because we have a great trait stack (to corrupt Scott Adams phrase):

Laws
Military dominance
Productivity
Technological prowess
Control of natural resources

and he "doesn't see that changing unless we do something incredibly foolish." Hello Green New Deal.

I'd like to point out that Adam's list is made possible by the inordinate amount of money produced here - Money is the jenga piece that will tumble the whole tower. Should interest rates rise or loans stop coming in, the party is over. Is there no scenario where either one or both can occur?

[Kriegsspiel]

What is Adam's list referring to?

[Kriegsspiel]

Whoa. Not to derail too much, but I am a millennial and I have never met anyone with that attitude. I've never even heard rumors of someone like that. Is artificial insemination + single motherhood a thing now?

Well, the oldest Millenials are around age 37, and there have been quite a few articles about chicks freezing their eggs and IVFing their way to single mommery, so it's plausible. I have a few links bookmarked that touch on it (google searches suggest that yes, it's a thing):

Link 1 We all will likely end up being more mediocre than we thought. This magical pool of super-boyfriends might never manifest. And at this rate, if and when they do, most of them will already be married.

I suppose what I’m acknowledging here is that I’m encroaching on “leftovers” territory. However, I would argue that the leftovers are not always crazy, but often are the women who refuse to subscribe to the Disney, faux happy ending, and who therefore lead more interesting and strange lives. So maybe I will end up settling to some degree. But in the meantime, I’ll just keep eating steak alone and RSVP’ing to orgies. Oh, and I should probably freeze my eggs."
Link 2 (audio) 13:48 "Maria's solution was to take time out. She gave herself a year off, and at the end of that year, just as she celebrated her 39th birthday, she made some pretty big decisions. She set off for Dubai, and she froze her eggs.

When my friend Amy hit that same fork in the road she made a very different decision, one that surprised herself and everyone around her. 'I found myself having a conversation with my best friend's mother where she asked me, sitting on the dock at the cottage in August, how was I going to feel if I turned 50 and I had let the window of having a child pass me by. And I got very angry at that question, and I knew enough then that that meant I needed to think about that. Four weeks later I found myself sitting in a fertility clinic waiting to have an appointment to discuss options to have a child on my own. And then a few months later I found myself 41 and pregnant. . .'

Link 3 "A dearth of marriagable men has left an “oversupply” of educated women taking desperate steps to preserve their fertility, experts say.

The first global study into egg freezing found that shortages of eligible men were the prime reason why women had attempted to take matters into their own hands. . . They said sweeping social changes meant that many professional women now struggled to find a partner that felt like an equal match.
. . .
Her own survey of women doing “social” egg freezing found the overwhelming majority of women having their eggs frozen were doing so because they could not find a partner, or because their own partner would not commit."

[Mister Imperceptible]

2. their criteria for an acceptable mate is not in touch with reality, one of the girls I know, I shit you not, will not even date a man unless he makes 200k/yr+ and has almost a million in assets. I explained to my wife, who is her friend, that a guy making 200k+/yr and over a million in assets is out of her league, first he's probably not going to want to get married for fear of losing said assets, and second he's going to be more inclined bag some 20 year old hottie because his market valuation is high.

And if a man in his twenties awash in six figures of student debt, but with an unshaking faith in himself and his destiny were to say to such a woman, “You can have the world, but first you must be patient, for great achievements require hard work, sacrifice, patience, persistence, and commitment,” she would would only laugh.

The opposite of the librarian is the cold fish career woman who spends dinner taking selfies with filters and pictures of her wine (for Instagram, of course) and boorishly declares that she would need a $50,000 diamond ring from any serious suitor, “not because I care about material things, but because that would prove he really loves me.” And no, she does not want to kiss.....this was a business meeting....did you think this was a date?

Idiot millennials will have to stop taking 3 vacations a year so they can post it on Instagram.

The woman who wrote the Vogue article Kriegsspiel linked sounds horrific.

[prognastat]

To pull from Kriegsspiel's third source:
The study found that more than 90 per cent of those freezing their eggs were not intentionally “postponing” their fertility because of education or careers.

“Rather they were desperately ‘preserving’ their fertility beyond the natural end of their reproductive lives, because they were single without partners to marry.”

“In most cases, these women were unable to find educated men willing to commit to family life

Well given that women are now graduating at higher rates from college than men this trend not seeming to slow down this is going to be a bigger and bigger problem for these women and they are going to have to do what the flood of higher educated men used to do. Marry down. Only problem is that a high income and education aren't near as high on men's lists of priorities as they are for women.

[Mister Imperceptible]

Another factor is that as a society we are no longer seeing returns on higher education across the board. We need more people going to vocational school and taking on less student debt. So the female lawyer should not scoff at getting serious with electricians and plumbers. They should pick up a copy of Lady Chatterley’s Lover.

As for the little rich New York girls whose occupation is writing tripe for Vogue because Daddy has money and Mommy knows somebody, well, good luck.