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Goldman Analyst Believes Trump’s Tax Reform Could Be A Mess

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One of the reasons why the torrid dollar rally of the past few weeks appears to have plateaued, at least for the time being, is that just like earlier in the year, doubts have emerged about the viability of the “new and improved” tax plan, which according to the Tax Policy Center would mostly benefit the “Top 1”, even as it eventually pushes taxes for the upper middle class progressively higher. One catalyst is a Bloomberg report overnight, in which Bob Corker was quoted as saying that the White House is showing “softness” on ending the $1.3 trillion federal tax deduction filers get for their state and local taxes, warning that it raises questions about the GOP’s “intestinal fortitude” and could imperil a tax overhaul.

The framework that President Donald Trump and Republican leaders released Wednesday calls for deep rate cuts and would abolish existing tax breaks to help pay for them. Without such “pay-fors,” Congress might have to settle for only temporary tax cuts.

Needless to say, temporary tax cuts would have far less of an impact on both stocks and the dollar than if Trump’s “biggest ever” tax reform is permanent.

But it’s not only the suddenly shaky future of SALTaxes.  As Goldman’s economists write overnight in a report looking at “what could possibly go wrong” with tax reform, they note that while “recent developments on tax reform have been positive” with the Senate’s “tentative budget agreement likely headed for passage in the Budget Committee this week” and the Big Six framework signaling narrower tax policy differences, there’s “plenty that could still go wrong.”

Some of the notable hurdles that could lead to Trump’s first year to have zero major legislative victories are as follows:

  • Revenue target hasn’t been finalized; Senate’s $1.5 trillion “tax cut instruction” is at high end of potential outcomes; legislation reducing revenue that much might face opposition from some Republican centrists
  • Major details remain unknown, particularly which tax preferences would be curbed to help offset costs
  • Some tax increases proposed to offset costs are likely to be very difficult to achieve, such as a repeal of state/local tax deduction, especially with Corker adding more fuel to the fire overnight.

Still, Goldman’s Washington analyst Alec Phillips concludes on the optimistic side and sees a 65% probability that “tax legislation will be enacted by 2018.”

There will be more details once the Senate Finance Committee holds a hearing on international tax reform today at 10am.

Until then, here is the full Goldman note:

Tax Reform: What Could Possibly Go Wrong?

  • Recent developments on tax reform have been positive. The tentative budget agreement announced in the Senate two weeks ago has been formally proposed and appears headed for passage in the Senate Budget Committee this week. The House also appears likely to pass its budget resolution this week, and the framework on tax reform released by the “Big Six” on September 27 signals a narrowing of tax policy differences.
  • That said, there is plenty that could still go wrong. First, the revenue target has not yet been finalized, and it is becoming increasingly clear that the Senate’s $1.5 trillion tax cut instruction is at the high end of the potential range of outcomes. It is possible that tax legislation that reduces revenues that much might still face opposition from some Republican centrists.
  • Second, while the recently released framework demonstrates greater consensus among the House, Senate, and White House than appeared to exist a few months ago, there are major details that remain unknown, particularly which tax preferences would be curbed to help offset the cost of the tax cuts.
  • Third, some of the tax increases that have been proposed to offset the cost are likely to be very difficult to achieve, such as repeal of the state and local tax deduction.
  • That said, in light of the increased flexibility the tentative $1.5 trillion revenue target would provide for tax reform efforts, we currently believe there is a 65% probability that tax legislation will be enacted by 2018.

The prospects for tax reform have increased markedly in the last couple of weeks as a result of the recently released budget agreement in the Senate and, to a lesser extent, the framework on tax reform released by the “Big Six”. While we have noted these positive developments several times recently, in today’s US Daily we focus on the long road ahead and the obstacles tax reform is likely to encounter along the way.

Tax reform is moving on two tracks. The first track involves the budget resolution for fiscal year (FY) 2018, which congressional Republicans hope to use to include “reconciliation instructions” for tax reform. These instructions typically carry three pieces of information: (1) which committees must carry out the instructions, (2) the fiscal goal of the policy change (to raise or reduce taxes, spending, or the deficit), and (3) the deadline by which the committees must pass the relevant bill. The draft budget resolution that was released on September 29 by the Senate Budget Committee instructs the House Ways and Means Committee and Senate Finance Committee to pass legislation to reduce revenues by $1.5 trillion over the next ten years by November 13, 2017. As shown in Exhibit 1, the Senate must then pass the resolution, and the House and Senate must the agree on a single, common version of the budget resolution, which could happen through a House-Senate conference committee, or by the House simply accepting the Senate’s resolution once the Senate has passed it. Once a final resolution has been agreed upon by simple majorities in the House and Senate, the second track begins in earnest.

The second track involves the passage of detailed legislation that reforms the tax code. While the draft resolution’s deadline for passage by the tax-writing committees is currently November 13, we expect them to take a little longer to pass a tax bill, given that there is no penalty for missing the deadline and there are still a number of issues to be worked out. That said, it is certainly possible that the House Ways and Means Committee will pass tax reform legislation in November. Passage in the full House is likely to follow no sooner than late November and more likely December. Senate consideration is unlikely to start until December and is likely to carry over into 2018, in our view. Even if the Senate were able to pass a bill by December, it seems unlikely to us that the House and Senate would be able to resolve all of their differences before year end, so enactment in Q1 2018 is our base case.

Exhibit 1: A long road ahead

 

The budget resolution looks likely to include a placeholder for a tax cut… The Senate’s draft budget resolution includes a placeholder for a tax cut of $1.5 trillion over ten years. With around $450bn in expiring tax provisions over the next ten years, this implies a $1.05 trillion tax cut compared with the tax that would be collected if current policy was simply extended. The revenue effects of the tax cut might be estimated on a “dynamic” basis, where the Joint Committee on Taxation (JCT) and Congressional Budget Office (CBO) would consider the economic growth implications of the tax bill and add back the resulting tax receipts to the estimate, lowering the overall cost of the tax bill. In the past, JCT dynamic scoring models have typically reduced the cost of a tax cut by around 10% to 20% compared with a conventional estimate. Depending on whether the dynamic score is applied to the $1.5 trillion or the $1.05 trillion figure, this could allow for a “real world” tax cut up to $1.2 trillion (0.4% of GDP) to $1.4 trillion (0.6% of GDP) over the next ten years.

…but this is a limit and the final tax cut could be smaller. The risk appears to be to the downside of the Senate’s tax reform placeholder, for two reasons. First, the House and Senate need to finalize their “reconciliation instruction” and the House’s draft takes a much more conservative approach, calling for revenue-neutral tax reform combined with $200 billion in spending cuts. While we expect that the instruction included in the final budget resolution will resemble the Senate’s version, changes are possible and the $1.5 trillion figure is more likely to move lower than higher if it does change.

Second, the instruction sets a limit on the size of a tax cut, and political constraints could lead to a smaller change. If the tax legislation cuts taxes by more than instructed under the budget resolution, it would trigger a procedural objection in the Senate that would take 60 votes to waive. Assuming Democrats will largely oppose the tax bill, this effectively limits the size of the tax cut to whatever amount is included in the reconciliation instruction. However, centrist Republicans might try to force the size of the tax cut down further. For example, Senator Corker (R-Tenn.) has indicated he plans to oppose any tax legislation that adds to the deficit over the long term beyond the cost of extending expiring tax provisions and the amount of tax cut that might be offset by a “reasonable” estimate of the revenue gain from economic growth under dynamic scoring. While it is hard to gauge what Sen. Corker might deem to be reasonable when it comes to dynamic scoring, there is a possibility that he and other like-minded centrist Republicans in the Senate would oppose a tax bill that cuts taxes as much as allowed under the $1.5 trillion reconciliation instruction, even if they have voted for the budget resolution that allows it. With Senator McCain (R-Ariz.) suggesting he might oppose legislation that is not considered under “regular order” with bipartisan support (as opposed to the reconciliation process), any further opposition from the remaining 50 (out of 52) Senate Republicans could sink the bill.

The tax policy debate is just getting started but key details remain unknown. The release of the “unified framework” on tax reform on September 27 represented a small step in reaching consensus on tax reform among the key White House and congressional leaders (Exhibit 2). However, there are many details that have not yet been clarified, including the income levels at which the new tax rates for individuals would kick in; without this detail it is impossible to determine the size of the tax cut for individuals, or whether it would be a tax cut at all.

Exhibit 2: Latest Proposal Represents Small Step Towards Consensus

Reliance on repeal of the state and local tax (SALT) deduction to pay for individual tax cuts is risky. The Tax Policy Center estimates repeal of the state and local deduction would generate $1.3 trillion in new revenue under the proposal. However, with 28 House Republicans representing the highest tax states of New York, New Jersey and California and dozens more representing states with slightly lower taxes, the odds of repeal are low in our view. While a limitation of some kind—a percentage limitation, a dollar cap, converting the deduction to a credit of a reduced amount, or repealing only the income tax deduction and allowing deductibility of only property taxes –is possible, this would raise substantially less revenue than outright repeal.

On the corporate side, the proposal is more detailed, but may not be affordable… The framework calls for a 20% corporate tax rate, which would reduce revenues on a “static” basis by around $1.8 trillion over ten years. Other corporate changes would add slightly to this total. The proposal also calls for a 25% rate on pass-through income earned by partnerships, sole proprietorships and other entities. The effect on tax receipts would depend on how much wage and other individual income was recharacterized as pass-through income, but a recent estimate by the Tax Policy Center puts the cost around $770bn over ten years. Most of the other business tax proposals in the framework are smaller and work in both directions, roughly offsetting each other. Nevertheless, this suggests that the business tax cuts account for at least a $2.5 trillion revenue loss.

…And will probably need to be substantially scaled back… The cost of the corporate provisions is far beyond the $1.5 trillion maximum revenue loss envisioned in the Senate’s budget resolution, and perhaps even farther beyond what centrist Republican senators might be willing to accept. Moreover, passing a large corporate tax cut while leaving individual taxes roughly unchanged on the whole would be difficult to sustain politically, suggesting that the business tax cut figure will need to come down well below the $1.5 trillion revenue target.

…Or phased in gradually. White House officials and the president himself have repeatedly stated that they are unwilling to negotiate on the 20% corporate tax rate. However, with the fiscal math as it is, it will be very difficult to achieve a corporate rate of 20% over the next ten years. In 2001, tax writers solved a similar issue by phasing in rate reductions over several years, which allowed them to pass legislation with much lower terminal tax rates than would be possible if rate reductions were phased in immediately. We expect that this could come into play on the corporate side, in particular, since it would allow congressional Republicans and the White House to announce a low headline rate even if it takes several years to achieve. By contrast, we would expect individual tax cuts to take effect more quickly, since lawmakers are likely to want to provide voters with a tangible benefit ahead of the 2018 midterm election.

Budget rules still pose a challenge. There are two important technical obstacles that must be overcome to pass tax reform via reconciliation. First, pay-as-you-go (PAYGO) rules constrain the consideration of deficit-increasing legislation. While most of these rules can be circumvented, one that could be difficult to get around is the statutory PAYGO rule enacted in 2010, which imposes automatic spending cuts via sequestration to offset the effect of any deficit increasing legislation Congress passes. This would not prevent Congress from passing a net tax cut, but might serve as a deterrent. Second, the “Byrd” rule in the Senate prohibits reconciliation legislation from increasing the budget deficit outside of the window covered by the budget resolution (traditionally 10 years). This is less of an issue regarding individual tax cuts, which might be allowed to expire after ten years under the assumption they would be extended later. However, it could pose problems for corporate tax changes, which tax writers hope to make permanent. Waiving either rule requires 60 votes in the Senate, so tax legislation will need to work within these constraints.

The next political test will be the upcoming Senate vote on its budget resolution. This week’s votes on the House Floor and in the Senate Budget Committee do not appear to pose much risk, as each chamber’s respective budget resolution looks likely to pass without substantial changes. There is somewhat greater uncertainty later in October, for two reasons. First, when the Senate resolution reaches the Senate, Republican centrists may attempt to reduce the size of the tax cut further, though at the moment our expectation is that whatever can pass the Senate Budget Committee can probably pass the full Senate as well. Second, and more importantly, the House and Senate resolutions are substantially different, as noted above. While we expect the Senate version to largely prevail, changes are possible before the final version is agreed to.

We see enactment of tax legislation by Q1 2018 as the base case, despite these risks. We upgraded our outlook on tax reform following the tentative budget agreement in the Senate two weeks ago, and believe there is a 65% chance that tax reform will be enacted by 2018. This is mainly because of the flexibility that the $1.5 trillion tax cut placeholder in the budget resolution gives tax writers, who will be able to avoid making as many politically difficult choices in order to lower tax rates, which increases the odds of tax reform, in our view. The tax cut placeholder also makes possible the enactment of a simple tax cut in 2018 if broader tax reform efforts fall through. As outlined above, there are a number of potential risks along the way, but at this point the arguments in favor of enactment of tax legislation by 2018 outweigh the arguments against it.

h/t ZeroHedge

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Economy

How The Elite Dominate The World

Did you know that 8 men now have as much wealth as the poorest 3.6 billion people living on the planet combined?

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Throughout human history, those in the ruling class have found various ways to force those under them to work for their economic benefit.  But in our day and age, we are willingly enslaving ourselves.  The borrower is the servant of the lender, and there has never been more debt in our world than there is right now.  According to the Institute of International Finance, global debt has hit the 217 trillion dollar mark, although other estimates would put this number far higher.  Of course everyone knows that our planet is drowning in debt, but most people never stop to consider who owns all of this debt.  This unprecedented debt bubble represents that greatest transfer of wealth in human history, and those that are being enriched are the extremely wealthy elitists at the very, very top of the food chain.

Did you know that 8 men now have as much wealth as the poorest 3.6 billion people living on the planet combined?

Every year, the gap between the planet’s ultra-wealthy and the poor just becomes greater and greater.  This is something that I have written about frequently, and the “financialization” of the global economy is playing a major role in this trend.

The entire global financial system is based on debt, and this debt-based system endlessly funnels the wealth of the world to the very, very top of the pyramid.

It has been said that Albert Einstein once made the following statement

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

Whether he actually made that statement or not, the reality of the matter is that it is quite true.  By getting all of the rest of us deep into debt, the elite can just sit back and slowly but surely become even wealthier over time.  Meanwhile, as the rest of us work endless hours to “pay our bills”, the truth is that we are spending our best years working to enrich someone else.

Much has been written about the men and women that control the world.  Whether you wish to call them “the elite”, “the establishment” or “the globalists”, the truth is that most of us understand who they are.  And how they control all of us is not some sort of giant conspiracy.  Ultimately, it is actually very simple.  Money is a form of social control, and by getting the rest of us into as much debt as possible they are able to get all of us to work for their economic benefit.

It starts at a very early age.  We greatly encourage our young people to go to college, and we tell them to not even worry about what it will cost.  We assure them that there will be great jobs available for them once they finish school and that they will have no problem paying off the student loans that they will accumulate.

Well, over the past 10 years student loan debt in the United States “has grown 250 percent” and is now sitting at an absolutely staggering grand total of 1.4 trillion dollars.  Millions of our young people are already entering the “real world” financially crippled, and many of them will literally spend decades paying off those debts.

But that is just the beginning.

In order to get around in our society, virtually all of us need at least one vehicle, and auto loans are very easy to get these days.  I remember when auto loans were only made for four or five years at the most, but in 2017 it is quite common to find loans on new vehicles that stretch out for six or seven years.

The total amount of auto loan debt in the United States has now surpassed a trillion dollars, and this very dangerous bubble just continues to grow.

If you want to own a home, that is going to mean even more debt.  In the old days, mortgages were commonly 10 years in length, but now 30 years is the standard.

By the way, do you know where the term “mortgage” originally comes from?

If you go all the way back to the Latin, it actually means “death pledge”.

And now that most mortgages are for 30 years, many will continue making payments until they literally drop dead.

Sadly, most Americans don’t even realize how much they are enriching those that are holding their mortgages.  For example, if you have a 30 year mortgage on a $300,000 home at 3.92 percent, you will end up making total payments of $510,640.

Credit card debt is even more insidious.  Interest rates on credit card debt are often in the high double digits, and some consumers actually end up paying back several times as much as they originally borrowed.

According to the Federal Reserve, total credit card debt in the United States has also now surpassed the trillion dollar mark, and we are about to enter the time of year when Americans use their credit cards the most frequently.

Overall, U.S. consumers are now nearly 13 trillion dollars in debt.

As borrowers, we are servants of the lenders, and most of us don’t even consciously understand what has been done to us.

In Part I, I have focused on individual debt obligations, but tomorrow in Part II I am going to talk about how the elite use government debt to corporately enslave us.  All over the planet, national governments are drowning in debt, and this didn’t happen by accident.  The elite love to get governments into debt because it is a way to systematically transfer tremendous amounts of wealth from our pockets to their pockets.  This year alone, the U.S. government will pay somewhere around half a trillion dollars just in interest on the national debt.  That represents a whole lot of tax dollars that we aren’t getting any benefit from, and those on the receiving end are just becoming wealthier and wealthier.

In Part II we will also talk about how our debt-based system is literally designed to create a government debt spiral.  Once you understand this, the way that you view potential solutions completely changes.  If we ever want to get government debt “under control”, we have got to do away with this current system that was intended to enslave us by those that created it.

We spend so much time on the symptoms, but if we ever want permanent solutions we need to start addressing the root causes of our problems.  Debt is a tool of enslavement, and the fact that humanity is now more than 200 trillion dollars in debt should deeply alarm all of us.

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Economy

Look Out Tesla, Apple’s On Your Six!

Shares of Apple moved lower after the company unveiled its newest models of the iPhone.

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I’ve got a confession to make… I’m a horrible dad.

You see, this week, I sent my 13-year old daughter to school without her iPhone.

I know, I know. That’s considered cruel and unusual punishment these days.

But when it was time to get in the car for school, Rebekah was checking her Instagram feed instead of getting ready to go. So I took her phone for the day.

According to Rebekah, that’s a big problem for a middle-schooler. “How am I supposed to communicate with my friends?!” (Heaven forbid she actually talks to them in person.)

As you can probably tell from my sarcasm, I think Rebekah’s perspective is a little off when it comes to her iPhone. Similarly, I think Apple’s investors also have a skewed perspective when it comes to the new iPhone models and the company’s long-term direction.

Fortunately, that skewed perspective sets up a great opportunity for income investors…

Apple’s Multi-Generational Iconic Brand

Shares of Apple moved lower after the company unveiled its newest models of the iPhone.

Apple’s iPhone 8 — along with the 10-year anniversary model “X” (pronounced “iPhone ten”) failed to inspire investors. Essentially, there weren’t enough surprise features for customers to get excited about.

I’m not sure I disagree with them…

You won’t find me standing in line to pay $1,000 for the newest iPhone. Honestly, the iPhone 5 or 6 has all the features I could ever really want in a phone. My kids have older models of the iPhone and they work perfectly fine for keeping in touch with each other and snapping pictures of little brother snuggling with the kittens.

But just because Apple got a cold reception to its latest products doesn’t mean the company is in trouble. Far from it!

You see, Apple will still sell plenty of its newest phones — and rack up billions in cash from these sales — for two reasons.

One: The iPhone is still a status symbol for young and old alike.

A recent survey from investment research firm Piper Jaffray found that 82% of U.S. teenagers expect their next phone be an iPhone. This was the highest percentage recorded since the company started its semi-annual survey.1

Older adults are not much different, with 79% stating that they want the latest edition of the iPhone.

Despite the lackluster reviews on Apple’s latest models, the newest iPhone is still one of the hottest status symbols in our ever-more materialistic society.

The second reason is that blue chip companies will still keep their employees outfitted with the latest technology.

My little brother works for one of the big four accounting firms. This week, I dropped by his house to watch some Monday Night Football, and found him showing off his new piece of hardware. It seems his firm has already issued the iPhone 8 to all its staff accountants.

As long as Apple remains the standard for consumer technology, you can bet that corporate America will continue to issue its products to employees. This is just one of the ways companies are vying for qualified employees — a resource that is growing more scarce by the day!

Apple’s “Next Big Thing”

If you’re an investor in Apple, you now find yourself in an enviable position of either having a “good” investment today, or possibly a “great” investment in the near future.

That’s because today, Apple is pulling in cash by the truckload thanks to its existing suite of products. At last count, Apple was sitting on $261.5 billion in cash, much of it will likely be freed up to pay to investors once congress passes a new tax plan.2

Apple’s cash balance grew by 13% year over year during the second quarter. And that rate of growth should accelerate in the third and fourth quarters of this year thanks to new sales of the iPhone 8 and iPhone X.

So just with today’s business the way it is, Apple is a “good” opportunity for income investors. (And that’s putting it modestly).

But what happens when Apple launches its “next big thing?”

And more importantly, what will that “next big thing” be??

I can tell you that Apple’s CEO Tim Cook isn’t content to sit back and sell iPhones until consumer tastes change. No, he’s got much bigger plans ahead.

In fact, Tim Cook has gone on the record stating that his company is focusing on autonomous systems… Which sounds a like self-driving cars and other equipment to me.

Think about the possibilities!

This summer, our own Davis Ruzicka wrote an intriguing article about what could happen if Apple bought Ford Motor (NYSE:F).

It’s not as farfetched as it might sound!

Can you imagine the buzz around the iCar or iTruck launch? Not to mention the cash that Apple will generate from blockbuster sales of the ultimate vehicle status symbol.

(Look out Tesla!)

Now I’m not suggesting you invest in Apple just because the company might step into the auto market. That’s a possibility but not something I would bet on.

But I do think the stock is an excellent investment right now, thanks to the company’s huge cash balance and reliable, growing dividend.

Just with its standard international business today, Apple is a solid investment. (And you’re getting a nice discount to buy shares thanks to the pullback following the release of the iPhone 8 and iPhone X.)

Looking forward, Apple could be a great investment if it comes out with a new blockbuster product that people want. And if and when that happens, shares will move sharply higher while Apple’s dividend grows at the same time.

So if you’re not already invested in AAPL, consider adding some shares to your retirement account today. At the very least, you’ll own a steady income generating investment. But I expect much more than that from Apple over the next few years.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
Twitter ❘ Facebook ❘ Email

1American teenagers, just like their parents, crave this status symbol more than ever, MarketWatch
2Apple cash pile hits new record of $261.5 billion, CNBC, Anita Balakrishnan

Ed. Note: One of the best ways to protect your wealth against a falling market is to lock in legally guaranteed income payments. This way, regardless of what the market does, and regardless of where the Fed sets rates, you can tell your company, “Forget you! Pay ME!!” Find out how to lock in these legally guaranteed payments here.

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Economy

The Craziest Mortgage Scheme I’ve Ever Seen

The Great Financial Crisis happened because Wall Street was financing homes for people who couldn’t afford them.

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The Great Financial Crisis happened because Wall Street was financing homes for people who couldn’t afford them.

Leading up to the GFC, there was a voracious appetite from investors for “AAA”-rated mortgage debt. So lenders would make lots of loans to subprime borrowers and sell them to Wall Street. Wall Street would pool them together and one of the major ratings agencies (like Moody’s or Standard & Poor’s) would stamp the steaming pile of garbage with AAA.

AAA by Moody’s definition means the investment “should survive the equivalent of the U.S. Great Depression.” In other words, it’s rock solid.

The reasoning was that one subprime mortgage was risky. But if you bundled thousands together, you get AAA… Because they couldn’t all go bad at once. And, hey, you can’t lose money in real estate.

The rating agencies weren’t as dumb as they appeared, though… Investigations following the crisis showed lots of incriminating emails, like this one from a Standard & Poor’s exec:

“Lord help our fucking scam . . . this has to be the stupidest place I have worked at.”

Like everyone else, they played along because they wanted to make money.

To generate enough mortgages to meet demand, lenders would do anything…

– Sell a house for no money down

– Offer a teaser rate (which temporarily reduces monthly payments, then jumps to market rates)

– And even offer to pay part of your mortgage for a couple months (most small lenders could sell a loan to Wall Street in a month or two, erasing their liability. If the origination payment was more than cash out of pocket, they still came out ahead).

They called the worst of the subprime loans “NINJAs” as in “No income, No job, No assets.”

When they couldn’t actually write enough mortgages to meet demand, Wall Street got creative. They started bundling together bundles of mortgages, something called a CDO-Squared. Then they created synthetic CDOs, which were just derivatives of subprime mortgages and even other CDOs (essentially a way for people to gamble on the mortgage market without actual mortgages).

As we all know, it ended in disaster… because the people who took out the mortgages they couldn’t afford to buy overpriced homes stopped paying. And the CDOs, CDOs-squared and synthetic CDOs (which had been spread around the world) went bust.

Remember, it all started with selling people homes they couldn’t afford. Which brings me to today…

There’s a record high $1.4 trillion of student debt in the US. And millennials are struggling to pay off those balances.

The National Association of Realtors polled 2,000 millennials between the ages of 22-35 about student debt and homeownership… Only 20% of those surveyed owned a home… Of the 8 in 10 that didn’t own, 83% of them said student debt was the reason. And 84% said they’d have to delay a home purchase for years (seven years being the median response).

And that’s all bad for the home-selling business. Once again, the lenders are getting creative…

Miami-based homebuilder, Lennar Homes, recently announced it would pay a big chunk of a student loan for any borrower buying a home from them.

Through its subsidiary Eagle Home Mortgage, the company will make a payment to a buyer’s student loans of as much as 3% of the purchase price, up to $13,000.

Debt has become such a keystone of our society, that the only way we can afford something is to swap one type of debt they can’t afford with another type of debt.

A recent study by the Pew Charitable Trust showed 41% of US households have less than $2,000 in savings – a full one-third have zero savings (including 1 in 10 families with over $100,000 in income). Another study showed 70% of Americans have less than $1,000 in savings.

The point is, America is broke… A single, surprise expense like a flat tire or a doctor’s visit would wipe most people out.

And it’s only getting worse.

Back in August, I calculated the average household account at Bank of America (which has $592 billion in consumer deposits from 46 million households)… It’s only $12,870 per household… And that includes savings, investments, retirement… EVERYTHING.

Also keep in mind, that’s the average… So accountholders with huge balances skew the numbers higher.

It’s no wonder Americans have $1.021 trillion in credit card debt – the most in history.

Auto loans are also at a record high $1.2 trillion.

And let’s not forget the US government, which is in the hole more than $20 trillion. The US’ debt is now 104% of GDP… And total debt has grown 48% since 2010.

The liability side of the balance sheet keeps expanding. Meanwhile assets and productivity aren’t keeping up.

But people continue buying homes, cars, TVs and college educations by taking on more and more debt… And now, by swapping one type of debt for another.

Wealth is built on savings and production. Not on playing tricks with paper and going deeper into debt.

I can’t tell when this house of cards falls. But rest assured, it will come tumbling down.

Will you be ready when it does?

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