Featured Content



Still worried about the economy? Become an elite charter member of George's DAILY PROFITS and you could... TRIPLE YOUR MONEY IN A MONTH! George gave us the $2.8-billion IT infrastructure provider, up 4,745.20%; the $1.8-billion advertising agency, up 1,295.44%; and the $762 million business software company, up 1,213.19%. Only charter members can follow George daily. Learn how here!

The Student Loan Ticking Bomb; Why It’s Such a Big Problem


The Student Loan Ticking BombThe threat of another credit rating downgrade for the U.S. national debt is increasing. But it’s not just due to the government’s inability to control its deficit; it’s about items not considered in budget talks. Student debt, for example, which has become increasingly guaranteed by the government, currently stands near $1.0 trillion.

And consumer debt is increasing, too. In third quarter 2012, non-real estate household debt in the U.S. economy increased 2.3% to $2.7 trillion, of which $42.0 billion was student loan debt. (Source: Federal Reserve Bank of New York, November 27, 2012.)

The percentage of student debt delinquent for 90 days or more is 11%. This delinquency rate is much higher than other credit products, such as credit cards, home equity line of credits, mortgages, and auto loans. Student debt default is skyrocketing.

A study by Fair Isaac Corporation, a credit score provider, found that about 26 million Americans had two or more student loans on their credit report in October of 2012. That’s up from 12 million in 2005, a rise of 116%.

How does this all relate to the U.S. national debt getting its credit rating cut again?

The federal government has been playing an active role in the student debt market. It makes 93% of all the student loans in the U.S. economy. (Source: Wall Street Journal, January 30, 2013.)

Now, imagine what happens to U.S. national debt if the delinquency rates on student debt keep rising as those who borrowed are unable to pay?

U.S. national debt has surpassed $16.4 trillion, and the government continues to post yearly deficits. I continue to ask: what happens when our creditors come to the realization that paying for expenses by printing paper money can only go on for so long? And what will that do to the value of the greenback and interest rates?

The truth of the matter is that there are no jobs in this country. As I wrote last Friday, the official U.S. unemployment rate actually rose in January from December, and the majority of jobs being created are in low-paying sectors, like retail and service (restaurants). If the jobs market is a bad one, how can we not have rising defaults on student debt? At the same time, college tuitions have increased significantly.

Why is this important to my readers?

While the government tries to get its annual deficit under $1.0 trillion, and makes promises that it will, other factors outside of its current regular bills are not being considered. Should the government start writing off some of its student debt guarantees? Sure it should. Will interest rates rise as inflation comes into play over the next couple of years, because there are too many dollars in circulation? Sure they will rise.

Add in the “unexpected” costs of higher interest rates, rising student debt defaults, and other “unforeseen” factors, and hundreds of millions of dollars could easily be added to the annual government deficit.

My point in all this?

It will be years before the Federal Reserve can turn off the money spout. Long-term, I believe this will be a big problem for consumers because of the inflation after-effects of such a large increase in the money supply. Inflation cometh; followed by higher interest rates.

Michael’s Personal Notes:

The Federal Reserve has increased its balance sheet significantly through quantitative easing, but I still continue to question its effectiveness. Quantitative easing hasn’t done much for the U.S. economy except: 1) make the banks richer; and 2) rally the stock market, which is good for Wall Street. Quantitative easing has not helped the working poor in this country; nor has it helped the great majority of our citizens.

We need to look at other nations that have already implemented quantitative easing and that have failed at it, such as Japan or the United Kingdom.

Similar to the Federal Reserve, the central bank of Japan has promised to print an unlimited amount of Japanese yen to boost its economic growth and to promote export. Unfortunately, the effects of this are unseen in the economy. As a matter of fact, things have just turned the other way. The trade gap for the Japanese economy for 2012 was $78.27 billion, and exports have been falling for seven consecutive months. (Source: Reuters, January 24, 2013.) Meanwhile, the Japanese yen has fallen in value against other major currencies in the global economy.

Likewise, the Bank of England took the route of quantitative easing. The result? The U.K.’s economy contracted in the fourth quarter of 2012. The central bank of England introduced quantitative easing in March 2009 to boost economic growth, and since then, the Bank of England has printed 375 billion pounds worth of paper currency it exchanged for government debt. (Source: Bank of England web site, last accessed February 4, 2013.)

When I see these nations struggling to spur economic growth through printing paper money, I become more skeptical about further quantitative easing by the Federal Reserve. We are becoming similar to these countries. Our dollar has declined in value against other world currencies, and our economy contracted in the fourth quarter of 2012.

The economic conditions for consumers in the U.S. economy are very poor. Bottom line: they don’t have excess money to spend, and they are worried about their financial future. Quantitative easing isn’t helping them, as they continue to suffer.

I stand by my belief that if quantitative easing didn’t work for countries like Japan and the United Kingdom, chances of it working here anytime soon are very slim to none. Don’t get fixated on the performance of the stock market, dear reader; it is running on hopes.

Where the Market Stands; Where It’s Headed:

For the stock market, we are at the top or very close to it.

What He Said:

“You’ve been reading my articles over the past few months and have seen how negative I’ve become on the U.S. economy. Particularly, I believe it’s the ramifications of the faltering housing sector that are being underestimated by economists. A recession doesn’t take much to happen. It’s disappointing more hasn’t been written on the popular financial sites and in the newspapers about the real threat of a recession happening in 2007. I want my readers to be fully aware of my economic opinion: I wouldn’t be surprised to see the U.S. economy in a recession sometime in 2007. In fact, I expect it.” Michael Lombardi in Profit Confidential, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.

Premium Content

Secret "New Swiss Bank Account" Safest Way to 44% Returns


It's the safest—but, until now, completely ignored—place for your money. Because these elite "bank accounts" pay guaranteed 5% cash payments per annum on top of returns on capital exceeding 44%... Learn all about them here.

About the Author, Browse Michael Lombardi's Articles

Michael Lombardi founded investor research firm Lombardi Publishing Corporation in 1986. Michael is also the founder and editor-in-chief of the popular daily e-letter, Profit Confidential, where readers get the benefit of Michael’s years of experience with the stock market, real estate, economic forecasting, precious metals, and various businesses. Michael believes in successful stock picking as an important wealth accumulation tool. Michael has authored more than thousands of articles on investment and money management and is the author of several successful... Read Full Bio »

Exclusive profit Confidential Presentation

Secret Retirement Plan Pays Up to $12,160 a Month?

Secret Retirement Plan Pays Up to $12,160 a Month?

A select group of Americans are retiring with a little-known retirement plan whose advertisement by its issuers is censored by Congress... Yet this plan enables Americans to potentially collect up to $12,160 in monthly income that's sponsored entirely by large-cap American companies. These secret Sponsored Retirement Plans are trumping social security by up to 10 times. And unlike mainstream retirement plans like 401(k)s or IRAs, SRPs are ideal for people who want to start with very little money. You could begin your SRP with as little as $10, $50, $100 or $400. To see real-life stories of folks who've built hundred-thousand-dollar portfolios thanks to SRPs and how to get your own plan started today, click here now!