Middle Class Erosion: 33 Million Americans Will Not Travel During The Holidays Because They Can’t Afford To Do So

We have repeatedly been told that the U.S. economy is “booming”, but meanwhile the middle class in the United States continues to be hollowed out.  The financial bubbles that the Federal Reserve has created have been a great blessing for those at the very top of the economic pyramid, but most of the country is still deeply struggling.  According to one survey, 78 percent of all full-time workers in the U.S. live paycheck to paycheck, and that doesn’t even include part-time workers or those that are unemployed.  We have also been told that unemployment is “low”, but the real numbers tell us that there are more working age Americans without a job in 2018 than there was at any point during the last recession.  Most of the people that my wife and I know are struggling, and I continually get emails from readers all over the country that are struggling.  The sad truth is that the middle class is slowly but surely dying, and more people are falling into poverty with each passing day.

And we got more evidence of this fact on Tuesday.  According to one new survey, 33 million Americans will not travel during the holiday season because they simply cannot afford to do so…

Wallet Hub’s Winter Travel Survey has revealed a disturbing trend: 33 million Americans won’t travel this winter because they can’t afford it.

I have been warning about the effect that rising interest rates would have on the economy, and rising rates are being blamed for this travel slowdown.  The following comes from MSN

However, Americans are still feeling the pinch of the pocketbook—part of that has to do with rising interest rates.

“U.S. consumers will be shelling out billions of dollars in extra charges they otherwise could be spending on other things such as travel,” said Mark A. Bonn, director of the resort and vacation rental management program at Florida State University. “This makes it difficult to travel now, let alone after the holiday spending has ended.”

But of course the truth is that most Americans were deeply struggling long before interest rates started to rise.

Those of us in our prime working years can try to work even harder to make ends meet, but when you are elderly and on a fixed income, there is little that can be done.

According to the Sacramento Bee, 9 million elderly Americans across the country “can’t afford to eat”, and in one of their recent articles they featured the plight of 71-year-old Floridian Janet Burke…

Burke is one of the nearly 9 million elderly people at risk of hunger in the United States. In Florida, with the highest percentage of people 60 and older, more than 750,000 elderly need food assistance, according to experts.

The problems confronting the elderly have become one of the hot topics for candidates this election year. Candidates in South Florida have pointed to the needs of the elderly as one of the key concerns voiced by voters.

More than 100 million Americans receive assistance from the government each month, but many citizens do not believe in receiving any help and so they just quietly suffer as they search for a way to make things better.

Today, I would like to share with you a testimony from someone that has been there.  My good friend Daisy Luther knows what it is like to barely survive from month to month, and the way that she described those struggles in one of her most recent articles was extremely poignant

Let’s talk about poverty.

I don’t mean the kind you’re talking about when your friends invite you to go shopping or for a night out and you say, “No, I can’t. I’m poor right now.”

I don’t mean the situation when you’d like to get a nicer car but decide you should just stick to the one you have because you don’t have a few thousand for a down payment.

I don’t mean the scene at the grocery store when you decide to get ground beef instead of steak.

I’m talking about when you have already done the weird mismatched meals from your pantry that are made up of cooked rice, stale crackers, and a can of peaches, and you’ve moved on to wondering what on earth you’re going to feed your kids.

Or when you get an eviction notice for non-payment of rent, a shut-off notice for your utilities, and a repo notice for your car and there’s absolutely nothing you can do about any of those notices because there IS NO MONEY.

If you’ve never been this level of broke, I’m very glad.

I have been this broke. I know that it is soul-destroying when no matter how hard you work, how many part-time jobs you squeeze in, and how much you cut, you simply don’t make enough money to survive in the world today.

If the U.S. economy really is “booming”, then why are millions upon millions of American families struggling like this?

Sadly, it is because the truth is that the U.S. economy is not “booming”, and we continue to get more indications that another major economic downturn is imminent.

It doesn’t have to be this way.  Blueprints have been proposed that would mean much better days ahead for America, but most Americans seem quite content with the status quo.

Most Americans seem to want corrupt politicians in Washington, a Federal Reserve system that is bankrupting future generations, an exploding national debt, a deeply oppressive system of taxation and a bloated national government that is becoming more monstrous with each passing day.

In this day and age, “liberty” and “freedom” are seen as antiquated concepts that are standing in the way of “progress”, and more government always seems to be the “solution” that is proposed whenever any crisis arises.

If we truly want to turn America around, we need to return to the values and the principles that once made this nation so great, and right now that simply is not happening…

About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

The Last Days Warrior Summit is the premier online event of 2018 for Christians, Conservatives and Patriots.  It is a premium-members only international event that will empower and equip you with the knowledge and tools that you need as global events begin to escalate dramatically.  The speaker list includes Michael Snyder, Mike Adams, Dave Daubenmire, Ray Gano, Dr. Daniel Daves, Gary Kah, Justus Knight, Doug Krieger, Lyn Leahz, Laura Maxwell and many more. Full summit access will begin on October 25th, and if you would like to register for this unprecedented event you can do so right here.

The American Dream Is Getting Smaller, And The Reason Why Is Painfully Obvious…

Over the past decade, an unprecedented stock market boom has created thousands upon thousands of new millionaires, and yet the middle class in America has continued to shrink.  How is that even possible?  At one time the United States had the largest and most vibrant middle class in the history of the planet, but now the gap between the wealthy and the poor is the largest that it has been since the 1920s.  Our economy has been creating lots of new millionaires, but at the exact same time we have seen homelessness spiral out of control in our major cities.  Today, being part of the middle class is like playing a really bizarre game of musical chairs.  Each month when the music stops playing, those of us still in the middle class desperately hope that we are not among the ones that slip out of the middle class and into poverty.  Well over 100 million Americans receive money or benefits from the federal government each month, and that includes approximately 40 percent of all families with children.  We are losing our ability to take care of ourselves, and that has frightening implications for the future of our society.

One of the primary reasons why our system doesn’t work for everyone is because virtually everything has been financialized.  In other words, from the cradle to the grave the entire system has been designed to get you into debt so that the fruits of your labor can be funneled to the top of the pyramid and make somebody else wealthier.  The following comes from an excellent Marketwatch article entitled “The American Dream is getting smaller”

More worrying, perhaps: 33% of those surveyed said they think that dream is disappearing. Why? They have too much debt. “Americans believe financial security is at the core of the American Dream, but it is alarming that so many think it is beyond their reach,” said Mike Fanning, head of MassMutual U.S.

Almost everyone that will read this article will have debt.  In America today, we are trained to go into debt for just about everything.

If you want a college education, you go into debt.

If you want a vehicle, you go into debt.

If you want a home, you go into debt.

If you want that nice new pair of shoes, you don’t have to wait for it.  Just go into more debt.

As a result, most Americans are currently up to their necks in red ink

Some 64% of those surveyed said they have a mortgage, 56% said they had credit-card debt and 26% said they have student-loan debt. Many surveyed said they don’t feel financially secure. More than a quarter said they wish they had better control of their finances.

You would have thought that we would have learned from the very hard lessons that the crisis of 2008 taught us.

But instead, we have been on the greatest debt binge in American history in recent years.  Here is more from the Marketwatch article

It makes sense that debt is on Americans’ minds. Collectively, Americans have more than $1 trillion in credit-card debt, according to the Federal Reserve. They have another $1.5 trillion in student loans, up from $1.1 trillion in 2013. Motor vehicle loans are now topping $1.1 trillion, up from $878.5 billion in 2013. And they have another nearly $15 trillion in mortgage debt outstanding.

That is one huge pile of debt.

We criticize the federal government for running up 21 trillion dollars in debt, and rightly so, but American consumers have been almost as irresponsible on an individual basis.

As long as you are drowning in debt, you will never become wealthy.  In order to build wealth, you have got to spend less than you earn, but most Americans never learn basic fundamentals such as this in our rapidly failing system of public education.

Many Americans long to become financially independent, but they don’t understand that our system is rigged against them.  The entire game is all about keeping consumers on that debt wheel endlessly chasing that piece of proverbial cheese until it is too late.

Getting out of debt is one of the biggest steps that you can take to give yourself more freedom, and hopefully this article will inspire many to do just that.

To end this article today, I would like to share 14 facts about how the middle class in America is shrinking that I shared in a previous article

#1 78 million Americans are participating in the “gig economy” because full-time jobs just don’t pay enough to make ends meet these days.

#2 In 2011, the average home price was 3.56 times the average yearly salary in the United States.  But by the time 2017 was finished, the average home price was 4.73 times the average yearly salary in the United States.

#3 In 1980, the average American worker’s debt was 1.96 times larger than his or her monthly salary.  Today, that number has ballooned to 5.00.

#4 In the United States today, 66 percent of all jobs pay less than 20 dollars an hour.

#5 102 million working age Americans do not have a job right now.  That number is higher than it was at any point during the last recession.

#6 Earnings for low-skill jobs have stayed very flat for the last 40 years.

#7 Americans have been spending more money than they make for 28 months in a row.

#8 In the United States today, the average young adult with student loan debt has a negative net worth.

#9 At this point, the average American household is nearly $140,000 in debt.

#10 Poverty rates in U.S. suburbs “have increased by 50 percent since 1990”.

#11 Almost 51 million U.S. households “can’t afford basics like rent and food”.

#12 The bottom 40 percent of all U.S. households bring home just 11.4 percent of all income.

#13 According to the Federal Reserve, 4 out of 10 Americans do not have enough money to cover an unexpected $400 expense without borrowing the money or selling something they own.

#14 22 percent of all Americans cannot pay all of their bills in a typical month.

This article originally appeared on The Economic Collapse Blog.  About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

11 Rage-Inducing Facts About America’s Wildly Out Of Control Student Loan Debt Bubble

Higher education has become one of the biggest money-making scams in America.  We tell all of our young people that if they want to have a bright future, they must go to college.  This message is relentlessly pounded into their heads for their first 18 years, and so by the time high school graduation rolls around for many of them it would be unthinkable to do anything else.  And instead of doing a cost/benefit analysis on various schools, we tell our young people to go to the best college that they can possibly get into and to not worry about what it will cost.  We assure them that a great job will be there after they graduate and that great job will allow them to easily pay off any student loans that they have accumulated.  Of course most college graduates don’t end up getting great jobs, but many of them do end up being financially crippled for decades by student loan debt.

In all of American history, we have never seen anything quite like this student loan debt bubble.  Since 2007, the total amount of student loan debt in America has nearly tripled.

Let me repeat that again.

Since 2007, the total amount of student loan debt in America has nearly tripled.

But of course the quality of college education has not tripled over that time.  Instead, it has progressively gotten worse.  At this point most college courses have been so “dumbed down” that the family pet could pass them.  If you would like to look into this more, you can find a list of 37 of the most idiotic college courses in America right here.

These days, most college courses do not require any actual writing.  Instead, your performance is judged by a series of “tests” consisting of multiple choice, fill in the blank, and true/false questions.  And the questions are usually ridiculously easy, because most of our high school graduates need to take remedial courses in basic skills when they get to college.

I spent eight years at public universities, and the quality of education that I received was a joke, and that was many years ago.  Now the quality of education has deteriorated so dramatically that most college degrees are essentially worthless from a practical standpoint, but for many professions you still need that “piece of paper” in order to “qualify” for certain jobs.

So the scam continues, and thousands upon thousands of “administrators”, “diversity specialists”, “career counselors” and “college presidents” are taking home massively bloated salaries at our expense.  Beautiful new lecture halls, residential complexes and sports stadiums are going up at colleges and universities all over the country, and textbook publishers are laughing all the way to the bank.

If everything but the basics was stripped away, the cost of actually delivering a college education to students would be quite low.  In fact, most learning could be done over the Internet.

But instead, the “college education industry” has convinced all of us that we desperately need their services, and that we shouldn’t care about the price.

Of course many of our young people are filled with regret once they get out into the real world and they realize that student loan debt is going to financially cripple them for the rest of their lives.

At this moment, America is drowning in more student loan debt than ever before.  The following are 11 rage-inducing facts about America’s wildly out of control student loan debt bubble…

#1 The student loan debt bubble has now grown to 1.4 trillion dollars.

#2 In 2007, the total amount of student loan debt in the U.S. was just 545 billion dollars.

#3 Over the previous ten years, student loan debt has grown by a staggering 176 percent.

#4 Americans now owe more on their student loans than they do on their credit cards.

#5 In 2003, student loan debt accounted for just 3.3 percent of all household debt.  Today, that number has grown to 10.5 percent.

#6 The current student loan 90-day delinquency rate is 11.2 percent.

#7 30 percent of all student loans in the United States are either in “deferment” or “forbearance”.  The most common reason a loan is placed into one of those categories is because the borrower cannot pay.

#8 It is being projected that a whopping 40 percent all student loan borrowers will default on their loans by 2023.

#9 From 2007 through 2017, “college tuition costs jumped 63 percent, school housing surged 51 percent and the price of textbooks by 88 percent.”

#10 In 2001, 18.6 percent of all U.S. households led by someone in the 18 to 34 age bracket were carrying household debt.  Today, that number has jumped to 44.8 percent.

#11 Each year, more than a million Americans default on their student loans.

This article originally appeared on The Economic Collapse Blog.  About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

U.S. Auto Sales Plunge Dramatically As The Consumer Debt Bubble Continues To Collapse

One sector of the economy that is acting as if we were already in the middle of a horrible recession is the auto industry.  We just got sales figures for the month of April, and every single major U.S. auto manufacturer missed their sales projections.  And compared to one year ago, sales were way down across the entire industry.  When you add this latest news to all of the other signals that the U.S. economy is slowly down substantially, a very disturbing picture begins to emerge.  Either the U.S. economy is steamrolling toward a major slowdown, or this is one heck of a head fake.

One analyst that has been waiting for auto sales to start declining is Graham Summers.  According to Summers, the boom in auto sales that we witnessed in previous years was largely fueled by subprime lending, and now that subprime auto loan bubble is starting to burst

Auto-loan generation has gone absolutely vertical since 2009, rising an incredible 56% in seven years. Even more incredibly roughly 1/3 of this ~$450 billion in new loans are subprime AKA garbage.

In the simplest of terms, this is Subprime 2.0… the tip of the $199 TRILLION debt iceberg, just as subprime mortgages were for the Housing Bubble.

I’ve been watching this industry for months now, waiting for the signal that it’s ready to explode.

That signal just hit.

The signal that Summers is referring to is a persistent decline in U.S. auto sales.  It would be easy to dismiss one bad month, but U.S. auto sales have been falling for a number of months now, and the sales figures for April were absolutely dismal.  Just check out how much sales declined in April compared to one year ago for the biggest auto manufacturers

General Motors: -5.8 percent

Ford: -7.1 percent

Fiat Chrysler: -7.0 percent

Toyota: -4.4 percent

Honda: -7.0 percent

For auto manufacturers, those are truly frightening numbers, and nobody is really projecting that they will get better any time soon.

At the same time, unsold vehicles continue to pile up on dealer lots at a staggering pace

Meanwhile, inventory days are still trending higher as OEMs continue to push product on to dealer lots even though sale through to end customers has seemingly stalled.

GM, one of the few OEMs to actually disclose dealer inventories in monthly sales releases, reported that April inventories increased to 100 days (935,758 vehicles) from 98 days at the end of March and just 71 days (681,402 vehicles) in April 2016.

So why is this happening?

Of course there are a lot of factors, but one of the main reasons for this crisis is the fact that U.S. consumers are already drowning in debt and are simply tapped out

Now, a new survey from Northwestern Mutual helps to shed some light on why Americans are completely incapable of saving money.

First, roughly 50% of Americans have debt balances, excluding mortgages mind you, of over $25,000, with the average person owing over $37,000, versus a median personal income of just over $30,000.

Therefore, it’s not difficult to believe, as Northwestern Mutual points out, that 45% of Americans spend up to half of their monthly take home pay on debt service alone.…which, again, excludes mortgage debt.

When you are already up to your eyeballs in debt, it is hard just to make payments on that debt.  So for many American families a new car is simply out of the question.

And it isn’t just the U.S. auto industry that is in trouble.  The credit card industry is also starting to show signs of distress

Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon – disclosed on Friday that, despite assurances to the contrary just three months ago, net charge-off would rise to at least 5% this year. Its shares plunged 16% and are down 27% year-to-date.

Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion.

If you didn’t understand all of that, what is essentially being said is that credit card companies are starting to have to set aside more money for bad credit card debts.

Previously I have reported that consumer bankruptcies and commercial bankruptcies are both rising at the fastest rate that we have seen since the last recession.  This trend is starting to spook lenders, and so many of them are starting to pull back on various forms of lending.  For example, Bloomberg is reporting that lending by regional U.S. banks was down significantly during the first quarter of 2017…

Total loans at the 15 largest U.S. regional banks declined by about $10 billion to $1.73 trillion in the first quarter, compared with the previous three-month period, the first such drop in four years, according to data compiled by Bloomberg. All but two of those banks missed analysts’ estimates for total loans, as a slump in commercial and industrial lending sapped growth.

This is how a credit crunch begins.  When the flow of credit starts restricting, that slows down economic activity, and in turn that usually results in even more credit defaults.  Of course that just causes lending to get even tighter, and pretty soon you have a spiral that is hard to stop.

Just about everywhere you look, there are early warning signs of a new economic downturn.  And just like we saw prior to the great crash of 2008, those that are wise are getting prepared for what is coming ahead of time.  Unfortunately, most people usually end up getting blindsided by economic downturns because they believe the mainstream media when they insist that everything is going to be just fine.

Thankfully, there are at least a few people that are telling the truth, and one of them is Marc Faber.  Just a few days ago, he told CNBC that the U.S. economy is “terminally ill”…

“Dr. Doom” Marc Faber says the U.S. economy is “terminally ill,” and the current outlook doesn’t seem to be improving.

“The U.S. has run a deficit for [so long],” he said Tuesday on CNBC’s “Futures Now.” “The conditions today are more fragile than they were ever before, and unless somebody comes and introduces minus 5 percent interest rates, I think the economy is really not in such a great shape.”

“I’m actually amazed that people are so optimistic,” the editor and publisher of the “Gloom, Boom & Doom Report” added.

I have to agree with Faber on this point.

We are more primed for a major economic downturn and a horrifying stock market crash than we were back in 2008.

It isn’t going to take much to push us over the edge, and with our world becoming more unstable with each passing month, it appears that our day of reckoning is likely to come sooner rather than later.

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.

What Is Going To Happen If Interest Rates Continue To Rise Rapidly?

Question MarkIf you want to track how close we are to the next financial collapse, there is one number that you need to be watching above all others.  The number that I am talking about is the yield on 10 year U.S. Treasuries, because it affects thousands of other interest rates in our financial system.  When the yield on 10 year U.S. Treasuries goes up, that is bad for the U.S. economy because it pushes long-term interest rates up.  When interest rates rise, it constricts the flow of credit, and a healthy flow of credit is absolutely essential to the debt-based system that we live in.  Just imagine someone squeezing a tube that has water flowing through it.  The higher interest rates go, the more economic activity will be squeezed.  If interest rates continue to rise rapidly, it will be more expensive for the U.S. government to borrow money, it will be more expensive for state and local governments to borrow money, the housing market may crash again, consumer debt will become more expensive, junk bond investors will be in for a world of hurt, the stock market will experience a tremendous amount of pain and there is a good chance that we could see the 441 trillion dollar interest rate derivatives bubble implode.  And that is just for starters.

So yes, we all need to be carefully watching the yield on 10 year U.S. Treasuries.  On Friday, it opened at 2.76% and hit a high of 2.86% before closing at 2.83%.  The yield on 10 year U.S. Treasuries is up nearly 120 basis points since the beginning of May, and almost everyone on Wall Street seems convinced that it is going to go much higher.

We are truly moving into unprecedented territory, because we have been in a bull market for U.S. Treasuries for the last 30 years.  Many investors don’t even know that it is possible to lose money on U.S. Treasuries.  They have been described as “risk-free” investments, but that is far from the truth.

In fact, we could see bond investors of all types end up losing trillions of dollars before it is all said and done.

And those in the stock market will lose lots of money too.  Low interest rates are good for economic activity which is good for the stock market.  The chart posted below shows that stock prices have generally risen as the yield on 10 year U.S. Treasuries has steadily declined over the past 30 years…

CFPGH-DJIA-20

When interest rates rise, that is bad for economic activity and bad for stocks.  That is why so many stock analysts are alarmed that interest rates are going up so rapidly right now.

And as I wrote about the other day, we have just witnessed the largest cluster of Hindenburg Omens that we have seen since before the last financial crisis.  The stock market already seems ripe for a huge “adjustment”, and rising interest rates could give it a huge extra push in a negative direction.

By the time it is all said and done, stock market investors could end up losing trillions of dollars in the next stock market crash.

In addition, rising interest rates could easily precipitate another housing crash.  As the Wall Street Journal discussed on Friday, as the yield on 10 year U.S. Treasuries goes up it will also cause mortgage rates to rise…

Higher yields will push up long-term borrowing cost for U.S. consumers and businesses. Mortgage rates will rise, and investors are keeping a close eye on whether this may derail the recovery of the housing market, which has shown signs of turning a corner this year.

In one of my previous articles, I included an example that shows just how powerful rising mortgage rates can be…

A year ago, the 30 year rate was sitting at 3.66 percent.  The monthly payment on a 30 year, $300,000 mortgage at that rate would be $1374.07.

If the 30 year rate rises to 8 percent, the monthly payment on a 30 year, $300,000 mortgage at that rate would be $2201.29.

Does 8 percent sound crazy to you?

It shouldn’t.  8 percent was considered to be normal back in the year 2000.

If you own a $300,000 house today, do you think it will be easier to sell it or harder to sell it if mortgage rates skyrocket?

Yes, of course it will be much harder.  In fact, there is a good chance that you will have to reduce your selling price significantly so that prospective buyers can afford the payments.

Let us hope that the yield on 10 year U.S. Treasuries levels off for a while.  If it says at this current level, the damage will probably not be too bad.

But if it crosses the 3 percent mark and keeps soaring, things could get messy pretty quickly.  In fact, according to a Bank of America Merrill Lynch investor survey, the 3.5 percent mark is when the collapse of the bond market is likely to become “disorderly”…

Our latest Credit Investor Survey, conducted July 8-11, showed that 3.5% on the 10-year is most commonly thought of as the trigger of a disorderly rotation – i.e. higher interest rates leading to outflows and wider credit spreads – among high grade investors.

Put differently, 3.0% on the 10-year will not lead to overall wider credit spreads if there is enough buying interest from institutional investors (though note that the 10s/30s spread curve would flatten further, as mutual fund/ETF holdings are concentrated in the belly of the curve, whereas institutional demand is disproportional in the long end of the curve). However, if the probability of a further move higher in interest rates to 3.5% is high – which will be the perception if interest rate volatility is high – certain institutional investors will choose to remain on the sidelines.

Thus there may not be enough institutional buying interest to mitigate retail fund outflows and contain overall high grade spread levels.

So what is causing this?

Well, there are a number of factors of course, but one very disturbing sign is that foreigners are selling off U.S. Treasuries at a pace that we have not seen since 2007…

One of the biggest fears in the financial markets is that foreign investors will stop buying U.S. Treasury securities, causing borrowing rates to surge.

Not that this is the beginning of a frightening trend, but new data from the Treasury Department shows that foreigners were net sellers in June. In fact, this is the largest net sale of U.S. securities since August 2007.

Do you remember all of the warnings that we have received over the years about what would take place when foreign countries started dumping U.S. debt?

Well, it looks like it may be starting to happen.

Unfortunately, there is no way that the party that the U.S. government has been throwing can continue without foreigners buying our debt.  We have added more than 11 trillion dollars to the national debt since the year 2000, and according to Boston University economist Laurence Kotlikoff we are facing unfunded liabilities in future years that are in excess of 200 trillion dollars.

Even with foreigners continuing to loan us gigantic mountains of super cheap money, it would still take a doubling of our taxes to put us on a fiscally sustainable course…

Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the U.S. is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged. “The U.S. fiscal gap is huge,” the IMF asserted in a June report. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of U.S. GDP.”

This sum is equal to all current U.S. federal taxes combined. The consequences of the IMF’s fiscal fix, a doubling of federal taxes in perpetuity, would be appalling – and possibly worse than appalling.

Prof. Kotlikoff says: “The IMF is saying that, to close this fiscal gap [by taxation] would require an immediate and permanent doubling of our personal income taxes, our corporate taxes and all other federal taxes.

“America’s fiscal gap is enormous – so massive that closing it appears impossible without immediate and radical reforms to its health care, tax and Social Security systems – as well as military and other discretionary spending cuts.”

Can you afford to pay twice as much in taxes to the federal government?

Very few Americans could.

But that is how serious the financial problems of the federal government are.

And all of the above assumes that interest payments on U.S. government debt will remain at current levels.  If the average rate of interest on U.S. government debt rises to just 6 percent, the U.S. government will be paying out a trillion dollars a year just in interest on the national debt.

Also, all of the above assumes that we will have a healthy financial system that does not need to be bailed out again.

But if rapidly rising interest rates cause the 441 trillion dollar interest rate derivatives bubble to implode, the bailout that the “too big to fail” banks will need will likely be far, far larger than last time.

In fact, once that bubble bursts there probably will not be enough money in the entire world to fix it.

If the picture that I have painted above sounds bleak, that is because it is bleak.

Sometimes I get frustrated with myself because I don’t feel I am communicating the tremendous danger that we are facing accurately enough.

We are heading for the worst financial crisis in modern human history, and the debt-fueled prosperity that we are enjoying today is going to go away and it is never going to come back.

You can dismiss that as “doom and gloom” and stick your head in the sand if you want, but that isn’t going to help anything.  Instead of ignoring reality you should be working hard to prepare your family for what is coming and warning others that they should be getting prepared too.

When a hurricane is approaching landfall, you don’t take your family out for a picnic at the beach.  That would be foolish.  Unfortunately, way too many Americans are acting as if nothing like the financial crisis of 2008 could ever possibly happen again.

If you deceive yourself into thinking that all of this is going to have a happy ending somehow, you are going to get blindsided by the coming storm.

But if you make preparations now, you might just be okay.

There is hope in understanding what is happening and there is hope in getting prepared.

So watch the yield on 10 year U.S. Treasuries.  The higher it goes, the later in the game we are.

Share This Chart With Anyone That Believes The U.S. Economy Is Not Going To Crash

Total Debt Growth vs. GDP GrowthAnyone that thinks that the U.S. economy can keep going along like this is absolutely crazy.  We are in the terminal phase of an unprecedented debt spiral which has allowed us to live far, far beyond our means for the last several decades.  Unfortunately, all debt spirals eventually end, and they usually do so in a very disorderly manner.  The chart that you are about to see is one of my favorite economic charts.  It compares the growth of U.S. GDP to the growth of total debt in the United States.  Yes, U.S. GDP has certainly grown at a decent pace over the years, but our total debt has absolutely exploded.  40 years ago, the total amount of debt in our system (government debt + corporate debt + consumer debt, etc.) was about 2 trillion dollars.  Today it has grown to more than 56 trillion dollars.  Our debt has grown at a much, much faster rate than our economy has, and there is no way in the world that we will be able to continue to do that for long.

Posted below is the chart that I was talking about.  The blue line is our total debt, and the red line is our GDP.  As you can see, this chart kind of speaks for itself…

Total Debt Growth vs. GDP Growth

So how did we get here?

Well, of course the federal government has been the biggest offender.  It would be a tremendous understatement to say that the politicians in Washington D.C. have been reckless.  Since the year 2000, the size of the U.S. national debt has grown by more than 11 trillion dollars.

Posted below is a chart that demonstrates the dramatic growth of the national debt as a percentage of GDP.  In particular, our debt has absolutely exploded as a percentage of GDP since the financial crisis of 2008…

National Debt As A Percentage Of GDP

Does that look sustainable to you?

Of course it isn’t.

Right now, the mainstream media is very excited that the federal budget deficit for this year might be less than a trillion dollars, but they are really missing the point.  The debt of the U.S. government is still growing much, much faster than the economy is, and the United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain.

What we are doing to future generations is absolutely criminal.  We are piling up mountains of debt that will haunt them for the rest of their lives just so that we can make the present a little bit more pleasant for ourselves.

As I noted in another article, during Obama’s first term the federal government accumulated more debt than it did under the first 42 U.S presidents combined.  And now we are entering a time period when demographic forces are going to put a tremendous amount of pressure on the finances of the federal government.

The Baby Boomers have started to retire, and they are going to want to start collecting on all of the financial promises that we have made to them.

As I have written about previously, the number of Americans on Medicare is projected to grow from a little bit more than 50 million today to 73.2 million in 2025.

The number of Americans collecting Social Security benefits is projected to grow from about 56 million today to 91 million in 2035.

Where are we going to get the money to pay for all of that?

Boston University economist Laurence Kotlikoff has calculated that the U.S. government is facing unfunded liabilities of 222 trillion dollars in the years ahead.

There is no simply no way that the U.S. government is going to be able to meet those obligations without wildly printing up money.

And of course the federal government is not the only one with massive debt problems.  We just saw the city of Detroit go bankrupt, and there are lots of other communities all over the nation that could soon follow.

Posted below is a chart that shows the growth of state and local government debt over the years.  In particular, please take note that the total amount of state and local government debt has grown from about 1.2 trillion dollars in the year 2000 to about 3 trillion dollars today…

State And Local Government Debt

But the chart posted above does not even take into account the massive unfunded pension obligations that state and local governments are facing.  According to the Detroit Free Press, state governments are facing unfunded pension obligations of nearly a trillion and a half dollars…

From Baltimore to Los Angeles, and many points in between, municipalities are increasingly confronted with how to pay for these massive promises. The Pew Center for the States, in Washington, estimated states’ public pension plans across the U.S. were underfunded by a whopping $1.4 trillion in 2010.

And many large cities are dealing with similar situations.  Detroit was the first to go down, but could Chicago or Los Angeles eventually be forced to declare bankruptcy too?…

Chicago recently saw its credit rating downgraded because of a $19-billion unfunded pension liability that the ratings service Moody’s puts closer to $36 billion. And Los Angeles could be facing a liability of more than $30 billion, by some estimates.

According to a report that was released earlier this year, the largest U.S. cities are facing hundreds of billions of dollars in unfunded pension liabilities at this point…

Early this year, the Pew Center released a survey showing that 61 of the nation’s largest cities — limiting the survey to the largest city in each state and all other cities with more than 500,000 people — had a gap of more than $217 billion in unfunded pension and health care liabilities. While cities had long promised health care, life insurance and other benefits to retirees, “few … started saving to cover the long-term costs,” the report said.

So where will all of that money come from?

That is a good question, and nobody has an easy answer at this point.

Meanwhile, U.S. consumers have been racking up staggering amounts of debt over the past several decades.  Just consider the following numbers…

-Total home mortgage debt in the United States is now about 5 times larger than it was just 20 years ago.

-Car loans just keep getting longer and longer, and approximately 70 percent of all car purchases in the United States now involve an auto loan.

-The total amount of student loan debt in America recently surpassed the one trillion dollar mark.

-One study discovered that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt, and according to a report published in The American Journal of Medicine medical bills are a major factor in more than 60 percent of the personal bankruptcies in the United States.

-Consumer debt in the United States has risen by a whopping 1700% since 1971, and 46% of all Americans carry a credit card balance from month to month.

Sadly, most people don’t realize how damaging credit card debt can be.  If you just carry an “average balance” on your credit cards each month, and those credit cards have just an “average” interest rate, you could end up paying millions of dollars to the credit card companies by the end of your life…

Let’s say you are an average American household, and you carry an average balance of $15,956 in credit card debt.

Also, as an average American household, let’s assume you pay an average current rate of 12.83%.

Finally, let’s assume you carry this average balance for 40 years, between ages 25 and 65.  How much did your credit card company make off of you and your extreme averageness?

Answer: $2,629,618.64

Incredibly, a large percentage of the population does not seem to understand these things.  An astounding 43 percent of all American families spend more than they earn each year.

Are you starting to understand why approximately half of all Americans die broke?

We are a nation that is completely and addicted to debt.

If you do not believe that it will ever catch up with us you are being delusional.

We have piled up the biggest mountain of debt in the history of the planet, and a day of reckoning is fast approaching.