Back in the summer of 2023 we described how increasingly massive(r) US government debt issuance - to the tune of $1 trillion every 100 days - was just one huge stealth fiscal stimulus which, along with Janet Yellen's Activist Treasury Issuance strategy, successfully managed to prevent the US economy from sliding into a recession in both 2022 and 2023, and allowing Joe Biden to parade with his economic track record, which together with the Fed's jumbo rate cut two months before the election, was supposed to guarantee the election of Joe Biden Kamala Harris (it didn't quite work out).
But it wasn't just the deficit-busting stealth debt stimulus that was artificially propping up the US economy: there was another massive crutch that the Biden admin was actively using to give the impression of economic stability - student loan deferral. Of course, this particular pandemic-era policy continued to support the U.S. economy through 2024, including the year-long “on-ramp” to resume repaying student loans. Since that ramp-up period ended last September, delinquency rates on student loans are rising, just in time for Donald Trump to be left to pick up the pieces.
What is key here, is that missed payments since September 2024 are now more than 90 days overdue, meaning they’re likely starting to show up on borrowers’ credit reports. And, as Bloomberg writes in a recent note, this will lead to a meaningful drop in consumer spending from the second quarter of the year onward, particularly for cars and household durable goods.
