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Student Debt: The Next Bubble?

26 Sep
Is Student Debt the Next Bubble

Student Debt: The Next Bubble?

Gold Market Discussion

Is Student Debt the Next Bubble?

Student Loan DefaultsAn article by New York Post contributor John Aidan Byrne the other day made a couple of points worth repeating regarding student debt.   

Bryne wondered if the student debt crisis will be the trigger for the next financial meltdown.  It’s a good candidate.  Today more than 30 percent of student loans are either in default, delinquent, or simply going unpaid. 

The student loan debt totals $1.5 trillion today.  That exceeds the value of subprime mortgages that lead to the Crash and Great Recession.  Byrne notes that “in March 2007, in the lead-up to the financial crisis, the value of subprime mortgages was estimated at $1.3 trillion.”

At its current pace, today’s $1.5 trillion student loan total is “careening to $2 trillion within the next three years,” he says.

The student debt burden is having a depressive impact on the economy that will only get worse.  It has millennials struggling to move out of their parents’ homes, buy their own homes, form capital to start businesses, and save for the future.

At least in the subprime crisis, loans were secured to some degree by the underlying real estate. 

But what secures student loans? 

Nothing.

Humorist P.J. O’Rourke put the question of collateral for student loans in perspective.  “How about an English thesis on Henry James?” he asks.

Yeah.  Take that to the bank.

There are many other things that can trigger the next financial crisis.  Trade wars.  Rising interest rates.  Metastasizing government debt.  A stock market crash.  Money printing.

Student debt is just one of many candidates. 

Like so many other things in the government’s financial house of cards, it reminds us of J.P. Morgan’s testimony to Congress more than 100 years ago. 

“Money is gold, nothing else.”

 


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