A while back I’d written about how the global economy had become leveraged to net exports to the US, which has turned out to be the case. And now with US imports of crude and products falling, another leg of this process seems to be underway, and in a world where no one runs high enough deficits to sustain domestic demand at reasonable levels.
A rough guess is 15x leverage? A US trade deficit of $500 billion is sustaining about $7.5 trillion in global ‘equity value’? More?
The student loan expansion adds to demand on the way up.
And subtracts when income goes to paying it back instead of spending.
American Dream Eludes With Student Debt Burden: Mortgages
By Kathleen M. Howley
April 12 (Bloomberg) — Luke Nichter of Harker Heights, Texas, said hes not a renter by choice. The Texas A&M University history professors $125,000 of student debt means he has no hope of getting a mortgage.
Nichter, 35, whos paying $1,500 a month on loans for degrees from Bowling Green State University in Ohio, is part of the most debt-laden generation to emerge from college. Two- thirds of student loans are held by people under the age of 40, according to the Federal Reserve Bank of New York, blocking millions of them from taking advantage of the most affordable housing market on record. The number of people in that age group who own homes fell by 4.6 percent in the fourth quarter from the third, the biggest drop in records dating to 1982.
Student debt has a dramatic impact on the ability to buy a house, and to buy the dishwashers and the lawnmowers and all the other purchases that stem from that, said Diane Swonk, chief economist of Mesirow Financial. It has a ripple effect throughout the economy.
The issue is being exacerbated by an explosion in the $150 billion private market for student debt with interest rates for some existing loans surpassing 12 percent. Unlike mortgage holders, borrowers have little hope of refinancing at lower rates. Interest on some new federal loans is set to double to 6.8 percent in July if Congress doesnt extend the current rate, as they did last year.
So maybe the year end FICA hike was more effective than markets have been discounting?
And this was before the sequester:
Retail Sales in U.S. Dropped in March by Most in Nine Months
By Alex Kowalski
April 12 (Bloomberg) — Retail sales in the U.S. unexpectedly fell in March by the most in nine months as employment slowed, showing households ended the first quarter on softer footing.
The 0.4 percent decrease, the biggest since June, followed a 1 percent gain in February, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for an unchanged reading in March. Department stores and electronics dealers were among the weakest showings.
The figures may prompt economists, who are projecting consumer spending climbed in the first quarter at the fastest pace in two years, to reduce growth estimates. A pickup in hiring and bigger increases in wages will be needed to ensure any slowdown proves temporary as federal budget cuts and an increase in the payroll tax restrain the expansion.
Households are now making those difficult choices on how to adjust spending, said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York, who projected sales would drop. We have no steam going into the second quarter.