Landmark Links February 20th – Bogged Down


Lead Story…. In the midst of the Great Recession, delinquencies spiked on all types of consumer debt as unemployment rose and wages stagnated or fell.  Then, starting in roughly 2011 delinquencies began to fall on mortgages, car loans and credit card debt as the economy continued its slow but steady recovery.  The improvement in consumer credit default rates happened across the board with one very notable exception: student loans.  The United States economy is trapped between a rock and a hard place when it comes to student debt.  On one hand, the return on investment for a college education is still excellent when compared to only having a high school degree.  On the other, the ballooning amount of debt is an economic drag that is only getting worse and will continue to act as an impediment to both consumption and investment for those encumbered with it.  Josh Mitchell of the WSJ wrote an article last week entitled The Rise of the Jumbo Student Loan which contained some very disturbing facts about the growth in high balance loans (emphasis mine):

During the housing boom of the 2000s, jumbo mortgages with very large balances became a flashpoint for a brewing crisis. Now, researchers are zeroing in on a related crack but in the student debt market: very large student loans with balances exceeding $50,000.

A study released Friday by the Brookings Institution finds that most borrowers who left school owing at least $50,000 in student loans in 2010 had failed to pay down any of their debt four years later. Instead, their balances had on average risen by 5% as interest accrued on their debt.

As of 2014 there were about 5 million borrowers with such large loan balances, out of 40 million Americans total with student debt.  Large-balance borrowers represented 17% of student borrowers leaving college or grad school in 2014, up from 2% of all borrowers in 1990 after adjusting for inflation. Large-balance borrowers now owe 58% of the nation’s $1.4 trillion in outstanding student debt.

The most disturbing part about these debts increasingly not getting paid down – in fact principal balances are rising thanks to interest accrual – is that it is happening during a time of economic growth.  I hate to think what this would look like if we were in a recession.  Perhaps the second most disturbing part is that this isn’t just an issue with students at low-end for-profit colleges or those with bullshit majors that result in employment as a highly educated barista.  In fact, the problem is particularly bad among grad school students and alums.  Again, from the WSJ (emphasis mine):

The problem is particularly acute among borrowers from graduate schools, who don’t face the kinds of federal loan limits faced by undergraduate students. Half of today’s big balance borrowers attended graduate school. The other half went to college only or are parents who helped pay for their children’s education.

Grad school borrowers tend to be among the best at paying off student debt because they typically earn more than those with lesser degrees. But the rising balances unearthed in the latest study suggest that pattern might be changing.

Overall across the U.S., one-third of borrowers who left grad school in 2009 hadn’t paid down any of their debt after five years, compared to just over half of undergraduate students who hadn’t, federal data show.

Mr. Yannelis and Mr. Looney, a former Treasury Department official under President Barack Obama, built the research out of exclusive access to federal student-loan and tax data.

The findings on graduate schools are particularly noteworthy because the government offers little information on the loan performance of grad students, who account for about 14% of students at universities but nearly 40% of the $1.4 trillion in outstanding student debt.

Hot financial topics of late are growth and inflation and based on current economic data, rightfully so.  However, I have to ask: is this sort of trend in the midst of a prolonged economic recovery really going to allow for strong economic growth in the long run?  Every dollar spent on student debt is a dollar that does not go back into the economy to fuel consumption and investment.  That’s fine if the rising debt balances result in higher incomes which in turn go to retire the loans more quickly.  However, that clearly is not what’s happening (higher incomes – yes, repayment of debt – no) and the long term consequences of having an indebted generation that can’t get out from under it’s obligations to lead normal adult lives are bleak.


Bad Correlation: The US economy is soaring but the deficit is as well and that is a bad combinationSee Also: The long term cost of the tax overhaul has bond investors spookedAnd: Rising yields combined with a falling dollar have Japanese fixed income investors fleeing US Treasuries.

Up, Up and Away: Some level of inflation is a natural consequence of a strong and growing economy, but too much of it can lead to a bust.

In the Long Run: As Boomers continue to age, it’s going to be difficult to maintain even 2% growth let alone today’s lofty targets.


Office Space: Slowing construction starts and strong absorption have resulted in the lowest US office vacancy rate in a decade.

Takeover? WeWork started out as a co-working company.  However, it’s eventual ambitions are far, far larger.


Under Pressure: Low priced homes are still rising in value faster than high priced homes and many signs point to the shortage driving this dynamic intensifying (h/t Aman Lal)  See Also: The barbell of Millennial first-time buyers and Boomer move-down buyers is crushing the supply of affordable homes.

Good News: US home construction rose 9.7% in January and builders showed signs that they are planning to ramp up construction later this year as tax reform will positively impact the bottom line.


Massive Game of Telephone: The Dutch tulip mania is often held up as the most absurd bubble of all time.  However, a bit of new research indicates that much of what we think we know about it may be a tremendous exaggeration. from sources that are dubious at best if not outright satirical.

Bigger Idiots: Blockchain may very well be the way of the future.  However, many speculators are buying into ICOs backed by questionable technology that they do not understand in the hope that someone else will pay more down the road.

Chart of the Day

Shrug it Off – builders don’t appear to be affected by higher mortgage rates yet.


Hot Boxing: A flight from Dubai to Amsterdam made an emergency stop in Vienna when an elderly, obese man refused to stop farting, eventually causing a brawl.  (h/t Steve Sims)

Frivolous: A woman who claims to have seen Bigfoot is suing the government to recognize Sasquatch as a species because California.

Juiced: An Olympic curling competitor (yes, curling) was busted for performance enhancing drugs because Russia.

Ironic: A meth trafficker in Michigan who was busted wearing a D.A.R.E t-shirt is getting a minimum of 15-years in prison and the mug shot is incredible.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at