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The Debt Bomb is Detonating: A Wave of Defaults is Coming

Image shows a man pushing big boulder with debt written on it

June 26, 2020

Typically, the last bill people stop paying when they are overcome by debt is their mortgage and rent. Well, if that is the case, then Americans just rang the alarm bell, because things are about to get messy.

A recent survey conducted by Apartment List states that missed payments have begun to stabilize in the month of June—and at very high, alarming levels.

(Source, Apartment List)

Here are a few key and startling points indicated in their recent survey:

  • In June, 30 percent of Americans missed their housing payments, down slightly from 31 percent in May but still up from 24 percent in April.
  • Missed payments continue to concentrate among renters, younger and poorer Americans, and those who cannot work remotely.
  • A majority of payments missed at the beginning of the month are paid by the end of the month. But those who do not pay on-time in one month are much more likely to miss a payment in the following month.

Breaking this data down further backs up their statement that renters were the most likely to skip their payments (32%), which makes sense due to the fact that they have the least to lose. However, what is truly stunning is the fact that those with mortgages only scored three percentage points lower (29%).

Carrying on a trend that is appearing in many sectors of the economy, those most affected were under the age of 30, with approximately 40% of adults in this age bracket skipping out on payments, while the numbers decreased among older age brackets.

Additionally, and unsurprisingly, those in a lower earning bracket were also much more likely to either not pay or only partially pay their housing payments.

This tidal wave of missed payments is a trend that will likely continue for a number of months, and it has the possibility of sending countless people spiraling out of control, whether it be landlords who are sunk due to a wave of missed payments, banks who are seeing their bottom lines slashed, or the individuals who are eventually forced into default as the payments finally come home to roost.

However, don't think for a second that this problem is isolated to just the housing market. As I previously mentioned, housing payments are typically one of the last things not to be paid, which means that we have a very, very serious problem on our hands.

According to data from TransUnion, approximately 106 million Americans have skipped out on payments of all sorts, across all sectors, since the start of March.

Forbes reports:

  • The number of accounts that requested deferred payments, forbearance or any other similar type of relief since March 1, and continue to stay in such a state, stood at 106 million at the end of May.
  • The numbers at the end of May are three times larger than what they were at the end of April, signalling a steep increase in economic hardship.
  • 7.3 million auto loan accounts have also sought similar relief along with 1.3 million personal loans.

As indicated above, the auto sector is another sector of the economy that has been hit hard, with many skipping out on payments or deferring them until a later date.

This comes in tandem with a sharp decline in both used and new auto sales, which will have rippling effects across the industry for years to come.

(Source, barchart.com)

Meanwhile, in the delusional land that is Wall Street, everything looks just peachy as stocks continue to trade at absurdly high prices, shrugging off reality and trending higher, steadily moving back to old pre-coronavirus highs.

This is because nothing seems to matter anymore. Reality doesn't matter, data doesn't matter, facts don't matter… What does matter is that the printing presses keep churning out fiat dollar bills and the stimulus keeps flowing.

We are living in a completely artificial market that is willing to ignore the debt bomb that is being primed right under its feet and set to go off any day now.

This has the potential to bring the system to its knees, either forcing a debt jubilee in one form or another or forcing the Fed into a printing frenzy that will make the last few months look like child's play. As seen in the chart below, this is nothing to scoff at.

(Chart Source, Federal Reserve)

Unfortunately, I strongly believe that the "powers that be" will choose to protect their true constituents in the banking sector, just as they did in 2008, running to their rescue and bailing them out once again rather then letting them collapse due to the many mistakes they have made.

(Chart Source, goldprice.org)

Meanwhile, both gold and silver bullion are under renewed attack today, doing the exact opposite of what they should be doing, which is moving higher, mitigating and accounting for the incredible risk within the system, the ballooning debt creation, and the plethora of fiat money creation.

Seems sane right?

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About the Author

Nathan McDonald is a libertarian, entrepreneur and precious metals enthusiast. He has always taken a keen interest in free markets and economics since an early age, which naturally led him to become a true believer in precious metals and all that they stand for.

Nathan served eight years in the Royal Canadian Navy as an electronics technician, seeing the true state of the world, before starting his first successful business. He has since gone on to create a number of businesses, all of which are still in operation and growing.

In addition to this, Nathan runs a network of successful precious metals blogs, and a growing newsletter that has attracted readers from all around the world. He is a regular and highlighted writer for the highly respected Sprott Money Blog, which covers world events, geopolitics and of course precious metals.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

Comments

Paul Cernac
June 26, 2020 at 3:41 PM
It would be nice for Sprott Money to write an article about the recent listing in the NYSE and why people may want to invest in SII versus their other products.