Around the world, debt is skyrocketing – and rising interest rates are making it unsustainable. In this first part, Ben Norton discusses the impending crisis in the United States, before explaining in part two how Wall Street traps the Global South in debt.
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VIDEO:
TRANSCRIPT:
the world is on the verge of a massive
debt crisis with unsustainable debt
levels and defaults and delinquencies on
debt at the highest level since the 2008
financial crash this huge debt crisis is
something that is not only affecting
rich countries in the west like the
United States and numerous European
countries but in particular many
countries in the global South are facing
serious debt crises and this is really
the product of a perfect storm with
inflation and Rising interest rates with
supply chain shocks coming out of the
pandemic with Western sanctions with the
geopolitical conflicts and the new cold
war that the United States is waging
against China and Russia all of these
factors have come together in a
disastrous toxic mix that could lead to
very serious economic problems in the
near future this video that I’m doing
here is actually going to be in two
parts because I don’t want to make it
super long like an hour instead I’m
going to focus in the first part on the
major debt crises in the United States
with very rapidly Rising defaults and
delinquencies on credit card debt on
auto loans and the massive crisis in the
U.S commercial real estate market which
could potentially threaten the stability
of the U.S financial system itself and
in the second part of this video I’m
going to be looking at a report that was
done by economists warning about the
debt crises in the global South and the
parallels that these debt crises have to
the debt crises of the 1980s which were
linked to many neocolonial policies and
the international monetary fund in the
world bank and it has a lot to do with
geopolitics as well but again that is
going to be in a second video in the
first part here I’m going to be looking
at the situation in the United States
one of the most concerning signs of an
impending debt crisis in the United
States is that the number of North
Americans who are falling behind on
paying their credit card debt and auto
loans is at the highest level since the
aftermath of the 2008 financial crash
The Washington Post warned about this in
a report titled delinquencies rise for
credit cards and auto loans and it could
get worse it notes that more Americans
are falling behind in their car loans
and credit card payments that at any
time in more than a decade and more and
more people are deciding whether to pay
their credit card bills or their rent or
to buy groceries so having to choose
between your house and your food
and furthermore the article notes that
there are signs that the hardship for
millions of consumers will get worse
before it improves the average credit
card interest rate which is already at a
record high of 20.6 percent is going to
continue to keep climbing I want to
repeat that that is a shockingly high
number nearly 21
is the average credit card interest rate
in the United States that is exorbitant
that’s that’s those are loan shark rates
and furthermore student loan payments
that were previously paused for more
than three years due to the pandemic are
going to resume in October so this is
really a perfect storm for a debt crisis
now a big reason for this is because the
U.S federal reserve the U.S Central Bank
has been aggressively raising interest
rates ostensibly in order to bring down
Consumer Price inflation Nation although
in reality the chair of the Federal
Reserve Jerome Powell admitted that the
goal is to drop wages to bring down
wages so to smash the power of Labor so
Capital can discipline labor because
workers are always blamed for inflation
despite the fact that the Consumer Price
Index inflation we’ve seen in the past
few years were was mostly due to the
supplied shocks the shocks of the supply
chain due to the pandemic and the
lockdowns furthermore the war in Ukraine
and the Western sanctions on Russia and
Russia is of course one of the world’s
leading producers of oil and gas and
wheat and fertilizer so commodity prices
Rose a lot
because because of the war because of
the supply chain shocks in in the
lockdowns and as commodity prices go up
especially as the price of oil goes up
that tends to lead to an increase in
Consumer Price inflation
and especially considering that you need
oil to transport the goods that you’re
buying at the store so if the price of
oil goes up naturally the price of those
goods tends to go up as well so blaming
labor of course is what the FED always
does to try to justify attacking labor
and dropping their wages but this
article in the Washington Post points
out that the pain in the U.S economy
with more and more people unable to pay
their debt this pain is an indication to
Fed policy makers that their push to
tame inflation is working so they
consider this to be a good thing
they consider it good that more and more
North Americans are unable to pay off
their debt The Washington Post points
out that there are now actually 70
million more credit card accounts open
than there were in 2019 and Americans
total credit card debt has topped one
trillion dollars for the first time
along with the roughly two trillion
dollars in student loans
furthermore Shoppers are now turning to
buy now pay later services to cover
Necessities such as groceries because
the price of food has been rising so
instead they’re taking debt to pay for
food usage of this kind of debt to pay
for food has surged by 40 percent just
in the first two months of 2023.
and the Washington Post actually points
out there’s a funny little note here
they note that uh Amazon founder Jeff
Bezos owns the Washington Post and the
interim CEO of the Washington post Patty
stonecipher sits on Amazon’s board and
she was also the founding CEO of the
Gates Foundation so it’s you know it’s
it’s all known old boys club and you
know you’re not a member but this points
out that Americans are continuing to
trim discretionary spending and in fact
there has been a decrease in the
spending at physical you know mortar and
brick stores but there actually has been
an increase in spending online largely
at Amazon and that’s why they pointed
out that you know the Washington Post is
owned by this billionaire oligarch but
the point is that this article notes
that credit card delinquencies will
continue to rise in the second half of
2023 on top of rising interest rates and
student loan repayments higher energy
and electricity bills will also add to
Consumers debt loads and then finally I
haven’t even talked about auto loan
payments this article notes that
delinquencies on auto loan payments
which have already hit rates last seen
during the financial crisis of the late
2000s are also likely to keep climbing
during the financial crisis that is in
2008 five percent of the auto loans were
subprime borrowers whereas now it is six
percent so we’re seeing figures that in
some cases are at the same level or even
worse than the financial crisis of 2008.
the investment research firm game of
Trades produced a graph that is really
shocking it shows the the default rate
on credit card loans that are owed to
banks that are small Banks not the
biggest banks and many of these smaller
and Regional banks are the ones that are
really being hit hard by the rise of
interest rates and you can see that
actually the rate on the default rate on
these credit cards is at the highest
level since 1991 higher than the.com
bubble of
1999-2000 high higher than the 2008
financial crisis higher even than the
pandemic
game of Trades produced another graph
using Federal Reserve data that shows
that the net worth of households in the
United States is Contracting for the
fourth time since 1990 and the previous
times when U.S household net worth
decreased in the past three decades was
in 2000 in 2001 during the the.com
bubble bursting and the recession of
those years and then of course during
the great financial crash of 2008-2009
and right now once again it U.S the net
worth of U.S households is decreasing
and game of Trades points out that this
is at a time when credit card debt is
one trillion dollars the highest levels
ever and credit card interest rates have
soared above 20 percent they wrote
consumers do not look to be in good
shape and that’s putting it mildly I
mean this could very well be a major
debt crisis
and actually I haven’t even looked at
the worst part of the impending debt
crisis in the United States which is the
real estate sector in particular the
commercial real estate sector which is
pretty much in free fall right now
this is a key part of the United States
economy and what we’ve seen is a massive
decline in the value of Real Estate
Morgan Stanley has warned that
commercial real estate prices in the U.S
could decline by 40 which would rival
the declines in the 2008 financial
crisis and this could have major shock
waves across the rest of the U.S economy
because in many urban areas they’re
built the local economy is built around
commercial real estate if you have an
office building then you have a lot of
people working in the office and they
frequently go for lunch or dinner they
go to the local restaurants or to the
bars and they provide business to those
local Industries and then of course the
city government and the state government
get tax revenues from those buildings
the commercial real estate from the
local businesses so if you have a
collapse in in commercial real estate if
you have many of these Office Buildings
closing down then you’re also going to
see a lot of economic activity in that
area dry up and what we’re going to see
is really the how following out of many
of these urban areas and that also means
a drying out of tax revenues so then you
have local city state governments that
don’t have as much in tax revenue so
they face budget deficits so what we’re
seeing is a Cascade of crises that are
all interrelated and it’s even worse
when you look at the banking sector
which is very heavily exposed to real
estate loans The Wall Street Journal
just published a report this September
warning of a real estate Doom Loop which
it notes threatens America’s Banks
it notes that the commercial real estate
market is in meltdown in the United
States and there are trillions of
dollars in loans and Investments held by
Banks and other firms that are a looming
threat for the industry and potentially
the broader economy this is the danger
of setting off a doom Loop scenario
where losses on the loans held by the
Banks trigger the banks to to cut off
their lending which then leads to
further drops in property prices and
even more losses
The Wall Street Journal has a graph
showing just how heavily exposed the U.S
banking sector is to commercial real
estate since 2015 their exposure has
increased by 1.5 trillion dollars and
the graph points out that much of this
debt met these mortgages are held by
regional and local banks in the United
States and it notes that banks in the
U.S roughly doubled their lending to
landlords from 2015 until 2022 to
2.2 trillion dollars and once again
small and medium-sized Banks originated
many of those loans now this is
especially concerning because in the
United States in 2023 in the first few
months of this year there were three of
the four largest bank collapses in
history I repeat out of the the four
largest Bank collapses in U.S history
three of those collapses have been just
this year in the first few months of
2023 and those were relatively small
Regional Banks like Silicon Valley Bank
like Signature Bank like First Republic
Bank and now we see that there is this
larger looming crisis of exposure to
commercial real estate where the market
is in free fall right now and again
Morgan Stanley said it could fall by as
much as 40 percent in value
now one of the main reasons that those
Banks collapsed was because the U.S
federal reserve the U.S Central Bank has
been aggressively raising interest rates
and this has meant that many banks are
essentially insolvent in the United
States and in other countries where the
value of their Securities the assets
they hold has dropped significantly with
the rising interest rates and they
actually owe more in liabilities than
they hold in assets
the U.S Federal Deposit Insurance
Corporation the FDIC that’s the U.S
government body that was created during
the Great Depression in order to ensure
banks in the United States ensure the
deposits that people hold at Banks the
FDIC released data showing that since
2022 when the FED began aggressively
raising interest rates these Securities
held by these banks have significantly
fallen in value we’re talking about by
hundreds of billions of dollars per
quarter so when there was a run on the
bank like for instance Silicon Valley
Bank when people who held their deposits
at the bank tried to withdraw their
money the bank had to give them that
money but a lot of that money was tied
up in it was invested in these
Securities and because they had fallen
so much in value the bank Silicon Valley
Bank and others First Republic they had
to sell those Securities at a loss they
ended up losing a lot of money and
eventually they went under they had no
more Securities that they could sell to
pay the people who held deposits in
these Banks and of course the US
government bailed them out including the
uninsured deposits of wealthy depositors
of billionaires and big corporations
which I explained in a separate video
which I’ll link to in the description
below but what we’re also seeing here
with the crisis in the commercial real
estate market in the United States is
yet another major problem for the
banking sector which really could
undermine the stability of the entire
Financial system in the United States
that is not an exaggeration considering
how heavily exposed so many banks are to
real estate loans in fact the graph in
the Wall Street Journal article showing
the 1.5 trillion dollar increase in U.S
Bank’s exposure to commercial real
estate loans that those figures actually
in some ways downplay just how much of a
problem this is because as the article
points out that many banks increase
their exposure to commercial real estate
in ways that are not usually counted in
their tallies so for instance Banks lent
money to financial companies that made
loans to some of the very same landlords
and then they bought bonds debt backed
by the same types of properties
so in some ways we see very risky
Behavior that’s not dissimilar to The
Reckless and frankly criminal behavior
that Banks were engaged in that led to
the 2008 financial crash now this is
different but it does show that there
are there are these Investments that are
built upon more debt and more debt and
more debt and there’s often not enough
interrogation asking if this is actually
safe if this money can actually be paid
back or if it can be paid back is the
underlying asset that is the real estate
going to be worth the same in the future
because of course this big bubble this
real estate bubble was ultimately based
on the premise that interest rates by
set by the Federal Reserve would always
remain low forever and that clearly is
not the case so the Wall Street Journal
points out that this form of indirect
lending along with foreclosed properties
trading portfolio folios and other
assets linked to commercial properties
brings Banks total exposure to
commercial real estate to 3.6 trillion
dollars that is equivalent to about 20
percent of their deposits so one-fifth
of the value of the deposits held by
these Banks is tied up in loans and
Investments made involving real estate
and now
what we see is the value of that real
estate is significantly declining
because as the U.S federal reserve has
raised interest rates ostensibly to try
to bring down Consumer Price inflation
in the United States really to actually
try to bring down wages and decrease the
power of labor but as the FED has done
this it has also significantly dropped
down the value of not only Securities
you know government bonds but also real
estate because it’s pretty easy to
explain as interest rates go up it
becomes more expensive to borrow money
and if you look at sectors like real
estate the vast majority at least of
average people they don’t have enough
cash to buy a house especially
considering how expensive houses are
right you don’t have five hundred
thousand dollars in your bank account
unless you’re rich so in most people
most average working people and even
people who make more money than them
they usually go through a bank they get
a mortgage they borrow money to pay for
that house or at least they pay a down
payment and then the bank pays the rest
of it and as collateral the bank says
that if they if the person borrowing the
mortgage can’t pay back the mortgage the
bank uses the house as collateral the
real estate and this is also true for a
company that is investing in commercial
real estate so now that it’s more
expensive to lend there are few people
fewer people willing to take out those
loans from the banks those mortgages so
there’s less demand for the real estate
and as there’s less demand the prices
drop because if it’s very cheap to
borrow money if you can get a mortgage
from a bank with a one or two percent
interest rate then a lot of people would
say fine I’m gonna go buy a house
because I can actually afford the house
instead of paying you know all this
money in rent every month I could pay
that to pay I could instead of paying
rent that money could go to paying off a
mortgage and eventually the house will
be mine although it belongs to the bank
in the short and medium term until the
mortgage is paid off right so what is
happening now is that fewer people are
taking mortgages out because it’s more
expensive to take a mortgage interest
rates are higher and what that also
means is that with less demand people
who are selling their houses don’t have
as much bargaining power to ask for
higher price is so the value of these
houses on the market is dropping and
many of the banks that are holding these
mortgages these holding these real
estate loans now are also dealing with
the collateral that is the real estate
the house or the office that the loan is
backed by also decreasing in value so if
a company can no longer pay the mortgage
on the commercial real estate and they
tell the bank sorry I can’t pay this off
well the bank is left with the
collateral with this real estate that in
some cases is actually now worth less
than it was before when the purchaser
took out the mortgage and if the bank
tries to sell that real estate it’s
going to be sold at a loss
and by the way I should point out that
there’s another way in which the
chronically low interest rates also
contributed to this massive real estate
bubble that is being burst now with the
the significant decline in real estate
value and that is because interest rates
were so low for so long that many
investors many people who had a lot
extra money sitting around they invested
that money in real estate because
interest rates were so low they wouldn’t
invest that money in government
securities in treasury bonds or treasury
bills or many other Investments where
there was low return it was assumed that
real estate was a great investment
because not only did you get a return on
it because you have this bubble that is
being inflated by U.S government policy
and over time the idea is that if you
buy a house the house is going to keep
increasing in value so not only do you
get a physical tangible asset but you
get a return on that investment in scare
quotes over time so a lot of people
we’re not even buying houses to live in
they were buying houses as a form of
speculation as a form of investment and
this was part of this big asset price
inflation bubble being pumped up through
U.S government policy through Federal
Reserve Central Bank policy and since
2022 we now see that bubble has been
bursting with the significant rise in
interest rates by the Fed so when a huge
part of the banking sector is built
precisely on real estate
representing 20 percent of the value of
their deposits and you face this crisis
like we see now it really can
fundamentally impact the stability of
the entire Financial system now one
reason for the crisis in commercial real
estate in the United States is the
growing popularity of work from home
although this is actually exaggerated
and it’s not really the main factor now
this is what you will see some people
talk about but I think it’s actually
missing the forest for the trees and
this is of course because during the
pandemic more and more people were
working from home and even after the
pandemic a lot of people at least if
they have a job where they can do so
they’re working from home still they’re
not going to an office every day and
this has also financially incentivized
companies to cut costs because it’s very
expensive to pay for an office in a the
center of a city like New York or San
Francisco or Chicago or something so
many of these companies have cut costs
they’ve instead gotten smaller offices
and now that means that there is much
more real estate commercial real estate
in urban areas that is empty and as
there is a larger Supply
of more and more real estate prices tend
to go down because there’s not as much
demand so that is certainly a factor
along with the fact that a company
accompanies it which is that during the
pandemic a lot of people moved from
urban areas to Suburban or even rural
areas because you can get a much bigger
house with a yard for less than you can
get a you know a small apartment for in
an urban area so these are all factors
that have contributed to the commercial
real estate crisis in the United States
which is really threatening the
stability of the U.S financial system
but it’s not the main factor it’s easy
to get lost with that but in reality
this most significant factor is the
rising interest rates by the Federal
Reserve so what I think this really
shows is that friend of the show
Economist Michael Hudson is absolutely
right when he said that the U.S economy
has has put itself in a situation in
this dilemma where it can only survive
with low interest rates so that means
that it’s going to have to either accept
High rates of consumer price inflation
with low interest rates or this collapse
that we’re seeing now these major crises
that we’re seeing now because after the
2008 financial crash the U.S federal
reserve dropped interest rates basically
to zero and in fact the real interest
rates were negative because you know you
had interest rates based on on paper
close to zero but then you actually had
a slight bit of inflation Which is
higher than the actual interest rate so
those are negative real interest rates
so what this meant is you had so much
liquidity sloshing around so much money
basically being given out out for free
to the financial sector and then you
also had the policy of quantitative
easing through which the U.S federal
reserve basically printed money and then
bought up Securities not only U.S
government bonds but also invested in
Securities like for instance
mortgage-backed Securities helping these
banks by buying in some cases these
toxic assets that no one wanted to
invest in because they were pretty much
worthless so you had this massive
artificial bubble build up of not
Consumer Price inflation but what the US
government was actually doing was
fueling a big bubble of asset price
inflation pumping up the value of stocks
and bonds pumping up the S P 500 pumping
up real estate and this meant that rich
people who hold Investments got richer
and richer while working people got
poorer and in addition to benefiting the
banking sector these policies helped
enrich the rich in the country they made
the rich even richer because the top one
percent the wealthiest one percent of
North Americans hold 54 of stocks and
the wealthiest 10 of North Americans
hold nearly 90 percent of stocks whereas
the poorest half of people in the United
States only hold 0.6 percent of stocks I
repeat the poorer half of of the U.S
population holds 0.6 of the stocks the
investment website the motley full put
together a very useful graph an
interactive graph showing just how
unequal stock ownership is in the United
States the bottom 50 percent the poorer
half of North Americans own I mean just
basically nothing on this graph you can
see a fraction of one percent whereas if
you look at the top one percent
consistently more than half of stocks
owned by just the wealthiest one percent
and then if you also look at the 90 to
99 percentile we’re talking about over
35 percent so when you combine the top
one percent which as of the first
quarter of 2023 owned 53.6 of stocks
with the 90 to 99 range which as of the
first quarter of 2023 oh owned 23.4
percent together that’s 89 nearly 90 of
stock owned by just 10 percent of North
Americans and by the way when you factor
in racism as well you can see similar
figures white Americans own 89 of stocks
and and of course we know in the lead up
to the 2008 financial crash that many
banks engaged in ex illicitly racist
policies targeting black Americans and
Latino Americans with unfair loans on
very unfavorable conditions and the
banks knew that these families would be
unable to pay off these mortgages and
yet they use those mortgages to create
mortgage-backed Securities and then sold
those mortgage-backed Securities in
tranches of other assets and they built
this huge financial house of cards that
collapsed in the 2008 financial crash so
those were some of the warning signs
that I wanted to look at today and
analyze because we do see a lot of
reporting claiming that the U.S economy
is in such great shape you know
unemployment figures are technically low
although I think the way unemployment is
calculated is not a very useful metric
because a lot of people are under
employed a lot of college-educated
people who have useful skills are you
know they’re Uber drivers they’re
delivering food or whatever on an app
and they have multiple part-time jobs or
gigified jobs and this precarious work
despite the fact that they’re
underemployed they’re not considered in
the unemployment statistics which by the
way also don’t include people who gave
up looking for a job so I mean we see so
many indicators claiming that the
economy is doing so well but I think
more important indicators are whether or
not average working people can buy
groceries can pay their rent and with
the historic levels of credit card debt
default auto loan default and this real
estate crisis I think we can see very
clearly that the economy is not doing as
well as we were being led to believe now
on that note I’m going to end this first
part and I’m going to do another video
very shortly in which I look at the
situation in the global South which is
significantly worse the debt crisis that
were that is largely caused by these
very same Financial policies of the
United States the U.S federal reserve in
particular with its aggressive hiking of
interest rates but furthermore
there are definitely geopolitical
elements here the new Cold War policies
taken by the United States against China
and Russia the proxy war in Ukraine the
sanctions on Russia and many other
factors I’m going to be looking at that
in part two I’m going to conclude here I
want to thank everyone for joining me
today please subscribe on whatever
platform you are watching or listening
on I’m Ben Norton this is geopolitical
economy report and I’ll see you in part
two
