"The most prominent are the education bubble and the federal-spending bubble," he said, "both of which are supported by rapidly expanding debt."
A Sept. 17 Congressional Budget Office report describes the federal government's current tax and spending policies as "unsustainable," and adds, "At some point, investors would begin to doubt the government’s willingness or ability to pay U.S. debt obligations, making it more difficult or more expensive for the government to borrow money. Moreover, even before that point was reached, the high and rising amount of debt ... would have significant negative consequences for both the economy and the federal budget."
The national debt is about $17 trillion, and the U.S. debt clock shows that student loans exceed $1 trillion.
A development in the student loan market is reminiscent of the subprime mortgage crisis:
JPMorgan Chase has sent a memorandum to colleges notifying them that the bank will stop making new student loans in October ... 'We just don't see this as a market that we can significantly grow,' [says a Chase executive].
The move is eerily reminiscent of the subprime shutdown that happened in 2007. Each time a bank shuttered its subprime unit, the news was presented in much the same way that JPMorgan is spinning the end of its student lending.
"It's no longer sustainable and not the right place to allocate capital in the future," HSBC Holdings Group Chief Executive ... said in a statement the day HSBC shut down its subprime unit in 2007.
-- CNBC, September 5
Outstanding student loans are the second biggest source of household debt after mortgages, and the amount has more than quadrupled in the past 10 years. The Consumer Financial Protection Bureau says $8 billion in student loans are in default.
The federal spending and student loan bubbles pose a perilous challenge to the U.S. economy.
Read the entire CNBC article here.