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U.S. Household Debt: A New, Alarming Milestone

Think 2008 all over again

by Bob Stokes
Updated: February 23, 2017

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[Editor's Note: The text version of the story is below.]

At least since Prechter's Conquer the Crash first published in 2002, we've been sounding the alarm about the unsustainable rise in debt.

The book quoted a February 1957 letter written by bank credit and Elliott wave expert Hamilton Bolton:

In reading a history of major depressions in the U.S. from 1830 on, I was impressed [that] all were set off by a deflation of excess credit. This was the one factor in common.

Here are four charts and commentary from Conquer the Crash:

[These charts] show some aspects of both the amazing growth in credit -- as much as 100 fold since 1949 -- and the astonishing extent of indebtedness today among corporations, governments and the public.

So, the 2007-2009 financial crisis came as no surprise to us as exotic financial instruments like collaterialized debt obligations imploded.

Now, in 2017, U.S. debt is approaching a new milestone level. The Federal Reserve just issued a quarterly report and says the increase in 2016 amounted to $460 billion, the biggest leap in a decade (UPI, Feb. 17):

At the current rate of growth, household debt is expected to break the 2008 record high, of $12.68 trillion, sometime in 2017. …

Mortgages still make up the bulk of household debt, but student loans are now 10 percent of the total, auto loans are 9 percent of the total and credit card debt is 6 percent. Dollar amounts rose in each category in 2016's fourth quarter.

Indeed, here's a Feb. 17 Bloomberg headline:

Student Debt in America Has Hit a New Record

As the article notes, U.S. student debt hit a record $1.31 trillion in 2016, the 18th consecutive year it's risen.

Let's now turn our attention to the U.S. automobile market, where carmakers have been luring in buyers with rebates and generous longer-term borrowing terms.

Review this chart and commentary from our February 2017 Elliott Wave Financial Forecast:

As of September 2016, total subprime loans were $172 billion, or 16% of the $1.1 trillion car loan market. The chart above shows a record $30 billion jump in the third quarter. In another unmistakable sign of a stretched out credit bubble, J.D. Power estimates that 31.3% of car buyers through auto finance companies were upside down on their existing loans.

We believe that the current growth rate of U.S. debt matters, just like it did before the 2007-2009 financial crisis, and just like it did before the deflationary depression of 1929-1933.

We will continue to share vital information with our subscribers about the unfolding story of rising debt.

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