Jim Grant, the renowned Fed watcher who accurately predicted the 2007 housing bubble, warns that the U.S. economy is facing a potential disaster due to the end of the "free money era" and the accumulation of debt. Grant believes that the consequences of a decade of low interest rates will play out in the credit markets, with many corporations struggling to refinance their debt as interest rates rise and the economy slows. He points to the rise of "zombie companies" as an example of the challenges lenders may face. Grant predicts an era of higher interest rates that could last a generation, leading to low economic growth, high inflation, and potential corporate defaults. However, there is a counterargument that technological progress could bring deflation, although Grant is skeptical that the current rate of progress is fast enough to significantly reduce prices.
China's recent policy support measures, including the issuance of 1 trillion yuan in government debt, should be seen as stop-gap measures rather than economic stimulus, according to Societe Generale's Asia chief economist. The measures are aimed at fixing the system and resolving the debt problem, particularly in the real estate sector, which has been hit hard by the housing correction. While there are signs of expansion in the services and manufacturing sectors, there is a divergence between official and private surveys, indicating the fragility of the Chinese economy and the need for further stabilization efforts.
The Supreme Court's decision to strike down President Biden's student loan forgiveness program has left millions of Americans facing the resumption of loan payments and the accrual of interest starting on September 1, 2023. A TransUnion study reveals that many borrowers have accumulated additional debt during the payment pause, with the average consumer already carrying $35,000 in student loan debt. As a result, consumers are expected to experience "payment shocks," with 50% of them facing monthly payments of over $200 and one in five facing payments of over $500. The study also found that borrowers have taken on additional credit products, such as bank card debt, auto loans, and mortgages, further increasing their financial burden. The Biden administration has announced a 12-month "on-ramp" to repayment to help financially vulnerable borrowers, but interest will begin to accrue immediately, making it advisable for consumers to resume payments as soon as possible.
