Business Debt Delinquencies Are Now Higher Than When Lehman Brothers Collapsed In 2008

Insolvent - Public DomainYou are about to see more very clear evidence that a new economic crisis has already begun.  During economic recoveries, business debt delinquencies generally fall, and during times of economic recession business debt delinquencies generally rise.  In fact, you will see below that business debt delinquencies shot up dramatically just prior to the last two recessions, and the exact same thing is happening again right now.  In 2008, business debt delinquencies increased at a very frightening pace just before Lehman Brothers collapsed, and this was a very clear sign that big trouble was ahead.  Unfortunately for us, in 2016 business debt delinquencies have already shot up above the level they were sitting at just before the collapse of Lehman Brothers, and every time debt delinquencies have ever gotten this high the U.S. economy has always fallen into recession.

In article after article, I have shown that key indicators for the U.S. economy started falling in either late 2014 or at some point during 2015.  Well, business debt delinquencies are another example of this phenomenon.  According to Wolf Richter, business debt delinquencies have shot up an astounding 137 percent since the fourth quarter of 2014…

Delinquencies of commercial and industrial loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have begun to balloon (they’re delinquent when they’re 30 days or more past due). Initially, this was due to the oil & gas fiasco, but increasingly it’s due to trouble in many other sectors, including retail.

Between Q4 2014 and Q1 2016, delinquencies spiked 137% to $27.8 billion.

And we never see this kind of rise unless the U.S. economy is heading into a recession.  Here is more from Wolf Richter

Note how, in this chart by the Board of Governors of the Fed, delinquencies of C&I loans start rising before recessions (shaded areas). I added the red marks to point out where we stand in relationship to the Lehman moment:

Delinquencies-commercial-industrial-loans-2016-q1

Business loan delinquencies are a leading indicator of big economic trouble.

To me, this couldn’t be any clearer.

Just like the U.S. government and just like U.S. consumers, U.S. businesses are absolutely drowning in debt.

In fact, a report that was just released found that debt at U.S. companies has been growing at a pace that is 50 times faster than the rate that cash has been growing.

Just imagine what it would mean for your family if your debt was growing 50 times faster than your bank account.  Needless to say, this is an extremely troubling development

Well, American companies may just have a mountain’s worth of problems, according to a new report from Andrew Chang and David Tesher of S&P Global Ratings.

“At the same time, the imbalance between cash and debt outstanding we reported on last year has gotten even worse: Debt outstanding increased 50x that of cash in 2015,” wrote Chang and Tesher.

“Total debt rose by roughly $850 billion to $6.6 trillion last year, dwarfing the 1% cash growth ($17 billion).”

And the really bad news is that banks all across the country are starting to tighten credit to businesses.

In other words, they are beginning to become much more reluctant to loan money to businesses because debts are going bad at such an alarming rate.

When the flow of credit to the business community starts to slow down, it is inevitable that the overall economy slows down as well.  It is just basic economics.  So the deterioration of the U.S. economy that we have witnessed so far is just the beginning of a process that is going to take quite a while to play out.

And let us not forget that most of the rest of the world is already is much worse shape than we are.  Most global financial markets are officially in bear market territory right now, and some nations are already experiencing full-blown economic depression.

Now that the early chapters of the “next crisis” are here, most American families find themselves ill-equipped to deal with another major downturn.  In fact, USA Today is reporting that approximately two-thirds of the country is currently living paycheck to paycheck…

Two-thirds of Americans would have difficulty coming up with the money to cover a $1,000 emergency, according to an exclusive poll, a signal that despite years after the Great Recession, Americans’ finances remain precarious as ever.

These difficulties span all incomes, according to the poll conducted by The Associated Press-NORC Center for Public Affairs Research. Three-quarters of people in households making less than $50,000 a year and two-thirds of those making between $50,000 and $100,000 would have difficulty coming up with $1,000 to cover an unexpected bill.

What are these people going to do when they lose their jobs or their businesses go under?

If you have any doubt that the U.S. economy is already in recession mode, just look at this chart over and over.

For months, I have been warning that the same patterns that immediately preceded previous recessions were happening once again, and this rise in debt delinquencies is another striking example of this phenomenon.

This stuff isn’t complicated.  Anyone that is willing to be honest with themselves should be able to see it.  As a society, we have been making very, very bad decisions for a very, very long period of time, and what we are watching unfold right now are the inevitable consequences of those decisions.

*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*

We Might As Well Face It – America Is Addicted To Debt

Debt Tree - Public DomainCorporations, individuals and the federal government continue to rack up debt at a rate that is far faster than the overall rate of economic growth.  We are literally drowning in red ink from sea to shining sea, and yet we just can’t help ourselves.  Consumer credit has doubled since the year 2000.  Student loan debt has doubled over the course of the past decade.  Business debt has doubled since 2006.  And of course the debt of the federal government has doubled since 2007.  Anyone that believes that this is “sustainable” in any way, shape or form is crazy.  We have accumulated the greatest mountain of debt that the world has ever seen, and yet despite all of the warnings we just continue to race forward into financial oblivion.  There is no possible way that this is going to end well.

Just the other day, a financial story that USA Today posted really got my attention.  It contained charts and graphs that showed that business debt in the U.S. had doubled since 2006.  I knew that things were bad, but I didn’t know that they were this bad.  Back in 2006, just prior to the last major economic downturn, U.S. nonfinancial companies had a total of about 2.6 trillion dollars of debt.  Now, that total has skyrocketed to 5.8 trillion

Companies are sitting on a record $1.82 trillion in cash. That might sound impressive until you hear companies owe three times more – $5.8 trillion, according to a new report from Standard & Poor’s Ratings Services.

Debt levels are soaring at U.S. non-financial companies so quickly – total debt outstanding rose $650 billion in 2014, which is six times faster than the $100 billion in added cash.

So are we in better condition to handle an economic crisis than we were the last time, or are we in worse shape?

Let’s look at another category of debt.  According to new data that just came out, the total amount of student loan debt in the U.S. is up to a staggering 1.2 trillion dollars.  That total has more than doubled over the past decade…

New data released by The Associated Press shows student loan debt is over $1.2 trillion, which is more than double the amount of a decade ago.

Students are facing an average of $35,000 in debt, that’s the highest of any graduating class in U.S. history. A senior at University of Colorado, Colorado Springs, Jon Cheek, knows the struggle first hand.

“It’s been a pretty big concern, I work while I go to school. I applied for a bunch of scholarships and done everything I can to try and keep it low,” said Cheek.

And of course it isn’t just student loan debt.  American consumers have had a love affair with debt that stretches back for decades.  As the chart below demonstrates, overall consumer credit has more than doubled since the year 2000…

consumer credit outstanding

If our paychecks were increasing at this same pace, that would be one thing.  But they aren’t.  In fact, real median household income is actually lower today than it was just prior to the last economic crisis.

So American households should actually be cutting back on debt.  But instead, they are just piling on more debt, and the financial predators are becoming even more creative.  In a previous article,  I discussed how many auto loans are now being stretched out for seven years.  At this point, the number of auto loans that exceed 72 months is at an all-time high

The average new car loan has reached a record 67 months, reports Experian, the Ireland-based information-services company. The percentage of loans with terms of 73 to 84 months also reached a new high of 29.5% in the first quarter of 2015, up from 24.9% a year earlier.

Long-term used-vehicle loans also broke records with loan terms of 73 to 84 months reaching 16% in the first quarter 2015, up from 12.94% — also the highest on record.

When will we learn?

The crash of 2008 should have been a wake up call.

We should have acknowledged our mistakes and we should have started doing things very differently.

But instead, we just kept on making the exact same mistakes.  In fact, our long-term financial problems have continued to accelerate since the last recession.  Just look at what has happened to our national debt.  Just prior to the last recession, the U.S. national debt was sitting at approximately 9 trillion dollars.  Today, it is over 18 trillion dollars…

National Debt

Our debt has grown so large that we will never be able to get out from under it.  This is something that I covered in my recent article entitled “It Is Mathematically Impossible To Pay Off All Of Our Debt“.  Because of our recklessness, our children, our grandchildren and all future generations of Americans are consigned to a lifetime of debt slavery.  What we have done to them is beyond criminal.  If we lived in a just society, a whole bunch of people would be going to prison for the rest of their lives over this.

During fiscal year 2014, the debt of the federal government increased by more than a trillion dollars.  But in addition to that, the federal government has more than seven trillion dollars of debt that must be “rolled over” every year.  In other words, the government must issue more than seven trillion dollars of new debt just to pay off old debts that are coming due.

As long as the rest of the world continues to lend us enormous mountains of money at ridiculously low interest rates, we can continue to keep our heads above the water.  But this can change at any time.  And once it does, interest rates will rise.  If the average rate of interest on U.S. government debt was to return to the long-term average, we would very quickly find ourselves spending more than a trillion dollars a year just on interest on the national debt.

The debt-fueled prosperity that we are enjoying now is not real.  It is a false prosperity that has been purchased by selling future generations into debt slavery.  We have mortgaged the future to make our own lives better.

We are addicts.  We are addicted to debt, and no matter how many warnings we receive, we just can’t help ourselves.

Shame on you America.

The United States Of Debt: Total Debt In America Hits A New Record High Of Nearly 60 Trillion Dollars

America Is BrokeWhat would you say if I told you that Americans are nearly 60 TRILLION dollars in debt?  Well, it is true.  When you total up all forms of debt including government debt, business debt, mortgage debt and consumer debt, we are 59.4 trillion dollars in debt.  That is an amount of money so large that it is difficult to describe it with words.  For example, if you were alive when Jesus Christ was born and you had spent 80 million dollars every single day since then, you still would not have spent 59.4 trillion dollars by now.  And most of this debt has been accumulated in recent decades.  If you go back 40 years ago, total debt in America was sitting at about 2.2 trillion dollars.  Somehow over the past four decades we have allowed the total amount of debt in the United States to get approximately 27 times larger.  This is utter insanity, and anyone that thinks this is sustainable is completely deluded.  We are living in the greatest debt bubble of all time, and there is no way that this is going to end well.  Just check out the chart…

Total Debt

When the last recession hit, total debt in America actually started going down for a short period of time.

But then the Federal Reserve and our politicians in Washington worked feverishly to reinflate the bubble and they assured everyone that everything was going to be just fine.  So Americans once again resorted to their free spending ways, and now total debt in the United States is rising at almost the same trajectory as before and has hit a new all-time record high.

We see a similar thing when we look at a chart for consumer debt in America…

Total Consumer Credit

For a while after the recession it was trendy to cut up your credit cards and get out of debt.

But that fad wore off rather quickly, didn’t it?

It is almost as if 2008 never happened.  We are making the same mistakes with debt that we did before.

As I noted recently, total consumer credit in the U.S. has risen by 22 percent over the past three years alone, and at this point 56 percent of all Americans have a subprime credit rating.

And have you noticed that a lot of people are not afraid to extend themselves in order to buy shiny new vehicles these days?

During the first quarter 0f this year, the size of the average vehicle loan soared to a new all-time record high of $27,612.

Five years ago, that number was just $24,174.

And as I noted in one recent article, the size of the average monthly car payment in this country is now up to $474.

That is practically a mortgage payment.

Speaking of mortgage payments, even though home sales have been falling and the rate of homeownership in the United States is the lowest that it has been in 19 years, a very large percentage of those who own homes are still overextended.

In fact, one recent survey discovered that a whopping 52 percent of Americans cannot even afford the house that they are living in right now.

At the same time, an increasing number of Americans are acting as if the last financial crisis never happened and are treating their homes like piggy banks.   Home equity loans are soaring again, and when the next great crisis strikes a lot of those people are going to end up getting into a lot of financial trouble.

There has been much written about what is wrong with the housing industry, but the truth is that home prices are still way too high and young adults cannot afford to purchase homes because they are already loaded down by huge amounts of debt even before they get to the point where they are ready to buy.

In fact, a newly released survey found that 47 percent of millennials are spending at least half of their paychecks on paying off debt…

Four in 10 millennials say they are “overwhelmed” by their debt — nearly double the number of baby boomers who feel that way, according to a Wells Fargo survey of more than 1,600 millennials between 22 and 33 years old, and 1,500 baby boomers between 49 and 59 years old.

To try to get out from underneath it, 47% said they spend at least half of their monthly paychecks on paying off their debts.

When I read that I was absolutely astounded.

Of course the biggest debt that many young adults are facing is student loan debt.  According to the Federal Reserve, there is now more than 1.2 trillion dollars of student loan debt in this country, and about 124 billion dollars of that total is more than 90 days delinquent.

What we have done to our young people is shameful.  We have encouraged them to sign up for a lifetime of debt slavery before they even understand what life is all about.  The following is an excerpt from my previous article entitled “Is College A Waste Of Time And Money?“…

In America today, approximately two-thirds of all college students graduate with student loan debt, and the average debt level has been steadily rising.  In fact, one study found that “70 percent of the class of 2013 is graduating with college-related debt – averaging $35,200 – including federal, state and private loans, as well as debt owed to family and accumulated through credit cards.”

That would be bad enough if most of these students were getting decent jobs that enabled them to service that debt.

But unfortunately, that is often not the case.  It has been estimated that about half of all recent college graduates are working jobs that do not even require a college degree.

Considering what you just read, is it a surprise that half of all college graduates in America are still financially dependent on their parents when they are two years out of college?

According to the U.S. Census Bureau, only 36 percent of all Americans under the age of 35 own a home at this point.  That is the lowest level that has ever been recorded.

And we are passing on to our young people the largest single debt in all of human history.  Weighing in at 17.5 trillion dollars, the U.S. national debt is a colossal behemoth.  And almost all of that debt has been accumulated over the past 40 years.  In fact, 40 years ago the U.S. national debt was less than half a trillion dollars.

But this is just the beginning.  As the Baby Boomer “demographic tsunami” washes through our economy, we are going to be facing a wave of red ink unlike anything we have ever contemplated before.

Meanwhile, the rest of the planet is drowning in debt as well.

As I wrote about the other day, the total amount of debt in the world has risen to a new all-time record high of $223,300,000,000,000.

Our “leaders” keep acting as if these debt levels can keep growing much faster than the overall level of economic growth indefinitely.

But anyone with even a shred of common sense knows that you can’t spend more money that you bring in forever.

At some point, a day of reckoning arrives.

2008 should have been a major wake up call that resulted in massive changes.  But instead, our leaders just patched up the old system and reinflated the old bubbles so that they are now even larger than they were before.

They assure us that they know exactly what they are doing and that everything will be just fine.

Unfortunately, they are dead wrong.