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No Payment, No Problem: Bizarre New World of Consumer Debt
No Payment, No Problem: Bizarre New World of Consumer Debt
All kinds of weird records are being broken. But it’s scheduled to expire, and then what?
The New York Fed released a doozie of a household credit report. It summarized what individual lenders have been reporting about their own practices: If you can’t make the payments on your mortgage, auto loan, credit card debt, or student loan, just ask for a deferral or forbearance, and you won’t have to make the payments, and the loan won’t count as delinquent if it wasn’t delinquent before. And even if it was delinquent before, you can “cure” a delinquency by getting the loan deferred and modified. No payment, no problem.
Nearly all student loans go into forbearance, delinquencies plunge.
Student loan borrowers were automatically rolled into forbearance under the CARES Act, and even though many students had stopped making payments, delinquency rates plunged because the Department of Education had decided to report as “current” all those loans that are in forbearance, even if they were delinquent. Yup, according to New York Fed data, the delinquency rate of student loan borrowers, though many had stopped making payments, plunged from 10.75% in Q1, to 6.97% in Q2, the lowest since 2007:
Student loan forbearance is available until September 30, and interest is waived until then, instead of being added to the loan. In a blog post, the New York Fed said that 88% of the student-loan borrowers, including private-loan borrowers and Federal Family Education Loan borrowers, had a “scheduled payment of $0,” meaning that at least 88% of the student loans were in some form of forbearance. Until September 30. And then what?
Delinquent loans are “cured” without catch-up payments.
…click on the above link to read the rest of the article…
Why we need to lie to ourselves about the state of the economy
Why we need to lie to ourselves about the state of the economy
Since 2007, global debt has grown by US$57 trillion, or 17 per cent of the world’s gross domestic product. Photo: Louie Douvis
Like the characters in Samuel Beckett’s Waiting for Godot, the world awaits the return of wealth and prosperity. But the global economy may be entering a period of stagnation.
Over the last 35 years, the economic growth necessary to increase living standards, increase wealth and manage growing inequality has been based increasingly on rising borrowings and financial rather than real engineering. There was reliance on debt-driven consumption. It resulted in global trade and investment imbalances, such as that between China and the US or Germany and the rest of Europe.
Everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road.
Citizens demanded and governments allowed the build-up of retirement and healthcare entitlements as well as public services to win or maintain office. The commitments were rarely fully funded by taxes or other provisions.
The 2008 global financial crisis was a warning of the unstable nature of these arrangements. But there has been no meaningful change. Since 2007, global debt has grown by US$57 trillion, or 17 per cent of the world’s gross domestic product. In many countries, debt has reached unsustainable levels, and it is unclear how or when it is to be reduced without defaults that would wipe out large amounts of savings.
Imbalances remain. Entitlement reform has proved politically difficult. Financial institutions and activity dominate many economies.
The official policy is “extend and pretend”, whereby everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road. The assumption was that government spending, lower interest rates and supplying abundant cash to the money markets would create growth. While the measures did stabilise the economy, they did not lead to a full recovery. Instead, they set off dangerous asset price bubbles in shares, bonds, real estate and even fine arts and collectibles.
Read more: http://www.smh.com.au/comment/satyajit-das-column-20150825-gj7bcy.html#ixzz3kKkNLNv0
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