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A Tsunami of Defaults and Evictions Looms on the Horizon
Even as US stock markets rally and people anticipate a quick recovery as economies open up, a tsunami of defaults and evictions looms on the horizon.
The mainstream narrative has been that although the cobi19 shutdowns have rocked the economy, it’s not a financial crisis like we saw in 2008. Back in April, Peter Schiff said that we were absolutely heading toward a financial crisis and it will be worse than 2008.
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Up until this point, government intervention and leniency from lenders have put off the inevitable. But struggling debtors can’t kick the can down the road forever.
According to the latest available numbers from TransUnion, about 3 million auto loans and 15 million credit card accounts are in some kind of program to let people skip or make partial payments, and
NPR contends this number is probably understated. Meanwhile, homeowners are struggling to make mortgage payments. According to the analytics company Black Knight, 4.75 million homeowners have entered into forbearance plans. That represents about 9% of all mortgages.
Banks and credit card companies can’t let people off the hook on payments forever. Some smaller lenders are already hurting. American Financial Services Association President Bill Himpler told NPR that finance companies need a “government conduit” so they can borrow money themselves.
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When the money-lenders need to borrow, that might be a problem.
July will be a key month. That’s when the enhanced unemployment benefits will end and that could tip things into full financial crisis mode. Many of the 40-million-plus Americans who have lost their jobs over the last two months are only able to keep up with payments because of these benefits. An affordable housing advocate told NPR an end to enhanced unemployment could put thousands of people out on the streets.
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Consumer debt was already surging before the pandemic and policymakers are counting on even more debt to spur a recovery. But Americans were driving the economy with borrowed money before cobi19. At the end of 2019, total consumer debt stood at 19.3% of nominal GDP. This was the highest level ever. Even before ELbichito-19, we were asking how long the borrowing could keep going and warning that when it stopped, economic growth would likely stop along with it. Now the powers-that-be are depending on more borrowing to save the economy. People can only borrow so much. Credit cards have a limit. And a lot of people can’t even make payments on the debt they already have.
As Peter said, despite the mainstream narrative, we have the perfect storm for a financial meltdown on the horizon.
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Peter also noted that the Fed’s response is an indication that this is a worse financial crisis than 2008.
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A lot of people still anticipate a quick recovery once governments open up their economies. But that seems like wishful thinking given the levels of debt. There could be a lot of pain ahead.
A Tsunami of Defaults and Evictions Looms on the Horizon | SchiffGold