Household Debt Hits New Record of $13 Trillion
As the stock market soars to new heights, new data shows that US household debt has
reached yet another new record high. The Federal Reserve Bank of New York reported
last week that household debt totaled almost $13 trillion ($12.96T) in the 3Q ended
September 30, an increase of 0.9% from the previous quarter.
The 3Q reading was $280 billion above the previous record peak back in the 3Q of
2008. Just since 2013, household debt has climbed more than 16%.
Here are the recent highlights from the New York Fed:
• Overall: The $13 trillion of household debt is $280 billion above its 2008 third
quarter peak, and 16.2% above the 2013 second quarter trough.
• Mortgage balances: remain the highest component of household debt,
comprising $8.7 trillion
• Mortgage delinquencies continued to improve, with 1.4% of mortgages 90+
days delinquent
• Student loan debt: $1.4 trillion, with 11.2% 90+ days delinquent
• Credit card balances: increased by $24 billion, with 4.6% 90+ days delinquent
• Auto loans balances: increased by $24 billion to $1.2 trillion, continuing a 6
year trend, while 90+ day delinquencies increased to 4%
Mortgage balances, the largest component of household debt, increased again during
the 3Q. Mortgage balances shown on consumer credit reports on September 30 stood
at $8.74 trillion, an increase of $52 billion from the second quarter of 2017.
Credit card debt increased by $24 billion to a total of $808 billion in the 3Q, while
student loan debt increased by $13 billion and stood at $1.36 trillion as of the end of
September.
The Fed also reported that, as of September, 4.9% of outstanding household debt was
in some stage of delinquency. More specifically, of the $630 billion of debt that is
delinquent, $408 billion is seriously delinquent (90 days late or longer), the Fed said.
Consumers’ transition into serious delinquency for credit cards has been increasing at a
notable rate for one year, according to the Fed. The serious delinquency rate increased
from 4.4% in the 2Q to 4.6% in the 3Q.
Auto Loans: Delinquencies Rising in “Sub-Prime” Market
The growth in household debt can be attributed, at least in part, to the growth in auto
loan balances, which have increased for 26 consecutive quarters as a result of new loan
originations. In the aggregate, there are approximately $435 billion worth of auto loans
outstanding that were made to consumers with a credit score below 660.
Another area for concern, according to the New York Fed, is rising auto loan
delinquencies to “sub-prime” borrowers – primarily those with lower credit scores. The
New York Fed estimated that 23 million consumers hold subprime auto loans, which are
based on a credit score below 620.
Approximately 20% of new car loan originations are made to sub-prime borrowers.
These loans were not made by traditional banks or credit unions, but by auto finance
companies such as car dealers and related lenders.
As you might expect, there is a divergence in the delinquency rate for auto loans
between bank and credit union lenders compared with non-bank lenders. Auto loans
from traditional bank lenders had a 4.4% delinquency rate (90 days or longer), which
has been improving since the financial crisis. However, delinquencies on auto loans
from non-bank lenders have been more than double those of traditional bank lenders –
at 9.7% over the year ended September.
Given its current relative size as a consumer loan segment, the NY Fed says delinquent
sub-prime auto loans from auto finance companies do not, on an absolute basis,
meaningfully impact the overall economy – assuming it does not continue to worsen.
Given that caveat, the subprime auto loan market is important to monitor, at least in the
near-term as one economic barometer.
In summary, Americans faced with lackluster income growth continue to finance more of
their spending with debt. The largest gains came in student loans, auto debt and credit
cards. The question is, how long can this trend continue?
There are early signs that loan burdens are growing unsustainably large for borrowers
with lower incomes. That will only worsen as the Fed raises interest rates most likely in
December, with additional increases likely next year.
The Secret Congressional Sexual Harassment Slush Fund
New sexual harassment charges against prominent men, including some members of
Congress and other Washington high-brows, have been increasingly hurled in recent
weeks. More women are coming forth almost daily with new charges of harassment,
many of which are alleged to have occurred decades ago. All of these charges, if true,
are very serious.
But what I want to talk about today is the revelation last week of the existence of a
large, relatively unknown taxpayer-funded government “slush fund” that allows
politicians to buy-off their accusers and settle out of court. This could be the biggest
Washington scandal in decades.
Let’s start with a question: Since when are members of Congress and their staffs who
are accused of sexual harassment allowed to hush-up and pay off their accusers from a
secret slush fund financed by taxpayer dollars? Answer: Since 1995, we now find out.
Congress, as we all know, chooses to exempt itself from many of the same laws it foists
on the rest of us. This is nothing new, unfortunately, and many Americans agree: “If
only Congress had to live under the same laws we do, they’d get it, and they’d
change it.” But they don’t, and they won’t – and we the voting public don’t do much
about it.
Yet that may be changing just ahead as more Americans learn about this large slush
fund of taxpayer dollars used to pay off sexual harassment accusers victimized by
members of Congress and their senior staffers.
The slush fund was created following the 1995 enactment of the Congressional
Accountability Act which was supposedly designed to make Congress accountable to
many of the same laws it applies to us.
In addition, the Act sought to make changes in how Congress deals with charges of
sexual harassment against its members and staff. Prior to enactment of the law, a victim
of sexual harassment by a member of Congress had virtually no legal recourse at all.
Congress’s Office of Compliance – Guilty Until Proven Innocent
The Congressional Accountability Act (CAA) created the “Office of Compliance” to
deal with sexual harassment accusations and other sensitive issues. The problem is,
Congress decided essentially that accusers are guilty of lying until proven
innocent…really!
Complainants are required to begin the dispute resolution process with a mandatory
course of counseling that can last up to 30 days. Why counseling for the accuser and
not the accused?
Only after completing the compulsory counseling may a complainant pursue mediation.
That, too, can last up to 30 days. If mediation fails to resolve the issue to the
complainant’s satisfaction, he or she can only request an “administrative hearing,” or file
a federal lawsuit – both of which are expensive and lengthy.
Here’s the kicker…if the dispute is resolved in favor of the complainant (read: victim),
funds for the settlement don’t come out of the offender’s personal bank account or his or
her campaign account. Instead, they come out of this secret taxpayer-funded account
maintained by the Office of Compliance. It is so secret, in fact, that taxpayers don’t even
know they are funding it.
According to the Washington Post, there were 235 complainants (mostly sexual
harassment accusations) that received compensation totaling $15.2 million between
1997 and 2014. That’s more than one settlement per month for 17 years and nearly $1
million in payoffs per year. We, the taxpayers, have no idea on whose behalf we’ve
been paying to settle these mostly sexual harassment claims. That’s flat-out wrong!
I will say that the reasoning behind this convoluted dispute resolution process was that
there could be scurrilous political operatives trying to target political opponents with
potentially career-ending sexual harassment claims that are false. That is a reasonable
concern. But in the process of establishing protections for its members, Congress
knowingly or unknowingly institutionalized a “cover-up culture,” in which the supreme
end goal is to settle out of court and pay the alleged victims to go away quietly.
The “resolution” system is unfairly rigged to protect the careers of politicians and their
senior staffers. The fact that the accuser counseling sessions are mandatory reveals
that the objective has little to do with helping the alleged victims, but is instead simply
aimed at dissuading the alleged victims from proceeding with a legal complaint. Leave it
to Congress to find a way to insert layers of bureaucracy, paperwork and legal cost into
this resolution process.
In light of the recent explosion of sexual harassment charges, proposals are now
floating in Washington that would require mandatory sexual harassment training for
members of Congress and their staffs. Maybe that’s a good idea, but more importantly
the sexual harassment dispute resolution mechanism must be changed so that
accusers are not guilty until proven innocent.
We, the taxpayers who have been paying for almost two decades to quietly settle
literally hundreds of sexual harassment claims against members of Congress and their
staffs, have a right to know which members and staffers have made use of the hush
money over the years. Going forward, taxpayers should have detailed knowledge about
how that fund is used.
If Congress wants to get serious about its apparent culture of abuse, it will need to
address its cover-up culture. Slush funds may serve the immediate purpose of getting
alleged victims to go away, but they do little to stem the tide of sexual harassment.
What Congress needs – and American taxpayers deserve – is more transparency.
Thanks for reading!
Carissa
@carissamortgage