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home : opinion : opinion June 20, 2018

6/11/2018 7:32:00 AM
Is the Bubble About to Burst?

L. Wayne Howard

Some say I'm a nay-sayer.  Others blame my politics.  I've never made any secret of the fact that I'm much more inclined toward what most call left-wing ideas than at least 70% of the population in our area.  So if you wish, you can blame my comments on politics, and you certainly have (at least so far) substantial evidence to support an opposing viewpoint.  My fear is that it's about to change--in a big way.

The company Wallet Hub provides rankings of many, many things.   WalletHub is a personal finance website that was launched in August 2013. It is based in Washington, DC and owned by Evolution Finance, Inc. – parent company of the credit card website

In an email received from them Monday June 11th (the primary ranking accompanying the email being a list of cities with the biggest and smallest paydown of credit card debt), WalletHub writes:

"The personal-finance website WalletHub today released two key reports, one showing that consumers repaid $40.3 billion in credit card debt during Q1 2018, the second-biggest quarterly paydown ever, and the other finding that a Federal Reserve rate hike on Wednesday would cost people with credit card debt an extra $1.6 billion this year alone.
Below, you can find a handful of highlights from WalletHub’s Q2 2018 Fed Rate Hike Report and its 2018 Credit Card Debt Study, which is accompanied by a nationally representative credit card survey
  • At 3.80% for Q1 2018, the charge-off rate is up nearly 6% year over year and at the highest point since mid-2012.
  • We began the year owing more than $1 trillion in credit card debt for the first time ever, after adding a post-Great Recession record $91.6 billion to our tab in 2017.
  • 37% of people think travel is worth getting into debt for, behind just housing (47%) and health care (61%).
  • 89% of people say their personal finances are run better than the federal government.
  • 41% of people with credit card debt say they’ll pay it off in less than a year.
  • The Fed has cost the average homebuyer roughly $42,000, if you assume its six recent rate hikes are fully responsible for the rise in the average mortgage APR since January 2015."
It's absolutely true that the economy is rolling along at a brisk pace.  I've heard some say 'unprecedented,' but that isn't so.  The Trump tax cuts are often touted by his supporters as responsible; the GOP members of the NC General Assembly also laud the tax cuts they've made for corporations.  Those who study history (or are simply aware having lived through the period) know that a similar boom was also part of the 1990s--after Bill Clinton raised (not lowered) taxes on the very rich.  But let's leave the political discussion out for a bit.

The biggest problem most industries are having right now is finding qualified workers.  By qualified, I mostly mean able to pass the drug test.  If you doubt that statement, just ask any HR rep. 

Unemployment is at its lowest level in 18 years; consumer confidence (as evidenced by the willingness to add credit card debt) is high; the stock market is running at an all-time level.  

Two years before the great crash of 1929 and the onset of the Depression, President Calvin Coolidge declared that America was entering a new age of prosperity. In 1928, Herbert Hoover campaigned on the slogan "A chicken in every pot and two cars in every garage."

The 1920s was a period of economic growth, fueled by federal tax cuts, notably for those earning more than $100,000 (that's in 1920s dollars, by the way), as well as installment buying that enabled ordinary Americans to drive the new cars and fill their homes with labor-saving devices. It was a period without any regulation of businesses or banks. It was a time of optimism that encouraged even the most modest wage earner to invest in the ever-rising stock market. Coolidge-Hoover Prosperity the Republican Party boasted. America was isolationist, protectionist, and shielded by a conservative judiciary favoring the rights of business. Tax cuts for big business and the wealthy, an ever-climbing stock market, doing away with regulations that might impede business...does it all sound very familiar?

Prosperity in the Coolidge years did not eradicate poverty or end in a capitalist Utopian ideal. Instead, it produced millionaires who paid no taxes, and poor people who went hungry when the banks failed and the house of cards came tumbling down. The gulf between the rich and the poor expanded instead of diminishing during the Roaring Twenties. The disparity between the very rich and the very poor has grown more and more over the past three decades.  The biggest shrinking socio-economic group is those in the middle--bridging the gap between living in poverty and very well off.

Will it happen again? Good Lord, we hope not. But yes, it could. Some of the restrictions that kept it from happening again--like the Glass-Stegall Act--are gone. Some of the protections that were enacted into law after the Great Recession of 2008, part of the Dodd-Frank Act that started out as a few hundred pages and became several thousand, have now been repealed. 

I've been warning that things could get worse--a lot worse--for quite some time. Most of what you're reading now was actually written in early 2017.  I hope I'm wrong.  But only time will tell.

The old saying is still accurate, "those who fail to learn from history are doomed to repeat it." 

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Jackie D.

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