The Federal Reserve has linked rising student debt to a drop in homeownership among young Americans and the flight of college graduates from rural areas, two big shifts that have helped reshape the U.S. economy, the Wall Street Journal reported. The effect of student debt on the economy has been debated in recent years, as the total has soared to $1.5 trillion, surpassing Americans’ credit-card and car-loan bills. Congress and various White House administrations have pointed to federal student loans as a key way for Americans to pay for college and boost their career earnings. Critics have said the debt is damaging the economic prospects of a generation of Americans. The Fed research published Wednesday didn’t offer a verdict on those assertions. But it showed that student debt is linked to key life decisions for some — including whether to buy a home and where to live. Homeownership among people ages 24 to 32 fell 9 percentage points, to 36 percent from 45 percent, between 2005 and 2014, the Fed said. While many factors affected the homeowner rate, the Fed said 2 percentage points, or about a fifth, of the decline was tied directly to student debt. That translated into 400,000 borrowers who could have owned a home by 2014 but didn’t because of student loans.
The U.S. Supreme Court yesterday turned away a Texas bank’s constitutional challenge to the structure of the U.S. Consumer Financial Protection Bureau, passing up a case that could have led to more presidential power over an independent agency that President Donald Trump’s administration already has weakened, Reuters reported. The decision by the justices not to hear an appeal by State National Bank of Big Spring may not be the final word on the matter as three other cases involving the CFPB are heading toward the high court. At issue was whether the CFPB’s sole director possesses too much power in violation of the authority the U.S. Constitution gives a president to appoint and remove certain federal officials. A ruling in favor of the bank could have allowed a president to fire the agency’s director for any reason. The Texas bank’s challenge was delayed in reaching the justices because it was put on hold while the U.S. Court of Appeals for the District of Columbia Circuit dealt with a case involving mortgage servicer PHH Corp that had raised the same issues. Only eight of the nine justices on the court, which has a 5-4 conservative majority, participated in the decision to hear the case. Trump’s appointee Brett Kavanaugh recused himself, most likely because he took part in an earlier ruling in the case before joining the high court last October.
The average millennial (aged 18 to 34) had about $36,000 in personal debt, excluding home mortgages, last year, according to Northwestern Mutual’s 2018 Planning & Progress Study. That debt can feel both crushing — and endless. Just over 60 percent of millennials (classified here as those aged 18-37) with debt don’t know when, or if, they’ll ever be able to pay off what they owe, according to a new CreditCards.com report. That includes roughly 42 percent of millennials who don’t know when they’ll be able to wipe out their debt, and almost 20 percent of those who expect to die in debt. There are some bright spots in the data: Among those aged 18 to 30 with credit card debt specifically, 79 percent say they have a plan to wipe it out. On average, they expect to be debt-free by age 43, CreditCards.com finds.
Still, a lot of young people are feeling trapped. A lot of older people, too: Over 35 percent of those over age 73 predict that they’ll never pay off their debt.
The partial government shutdown has left some companies unable to get a taxpayer identification number from the IRS, holding up routine business deals until the agency’s workers return, the Wall Street Journal reported. Andy Mattson, an accountant with Moss Adams LLP in California who advises Silicon Valley companies, said the number-issuing halt has delayed deals for startups, some of which are based offshore to prevent double taxation of investors. Without a tax identification number, a foreign startup can’t get bank accounts to receive venture-capital money or make crucial tax elections, Mattson said. The shutdown’s impact on small businesses reaches beyond the slowdown in new identification numbers. “We have a buyer, but the buyer can’t actually take ownership of the business,” said Thompson. “All our tax planning is done. We are retiring. We are trying to be done, but it’s not happening.” The IRS system is still processing online requests for new taxpayer identification numbers. Many businesses in the U.S. or a U.S. territory can use the online system. But paper applications that need to be processed by IRS workers are stuck for now. Physical applications are typically made by foreign companies and by some companies in complicated financial situations. The IRS has been operating with a skeleton staff since the shutdown started on Dec. 22. Just one in eight employees are working, largely to maintain computer systems and investigate crimes, according to the IRS’s shutdown plan. Under federal law, the IRS can generally still perform activities needed to protect life and government property, including tax revenue.
Corporate bankruptcy cases unfolding in the nation’s federal courts are largely continuing during the government shutdown, even if it means furloughed Justice Department lawyers have to work for free, the Wall Street Journal reported. While the country’s bankruptcy courts have enough money to operate normally at least until Jan. 18, Justice Department officials are only allowed to play a limited role in continuing corporate bankruptcy cases during the shutdown. Some major cases are proceeding anyway. On Friday, a Delaware bankruptcy judge rejected the Justice Department’s request to pause the bankruptcy case of hospital operator Promise Healthcare Group LLC, which cares for more than 9,000 patients. Justice Department lawyers said their oversight power has been weakened by the government shutdown. Promise officials had argued that halting the case could scare off buyers who are interested in its 16 hospitals and two nursing homes. The Boca Raton, Fla., company employs about 4,500 people in nine states. Justice Department officials who are working without pay asked on Wednesday to halt the case, citing the heavily regulated nature of Promise’s operations. “I have limited ability to continue reviewing orders and participating in hearings,” Justice Department lawyer Danielle Pham told Judge Christopher Sontchi during a Friday hearing in U.S. Bankruptcy Court in Wilmington, Del.
The numbers: Consumer borrowing stayed strong for the second straight month in November, according to the Federal Reserve on Tuesday. Total consumer credit increased $22.1 billion in November to a seasonally adjusted $3.98 trillion. That’s down only slightly from a $25 billion gain in October, which was the fastest pace in 11 months. Economists had been expecting a $19 billion gain in credit, according to Econoday. This is the third month out of the past four that consumer credit grew more than $20 billion. That hasn’t happened in four years. Consumer credit has been trending around a $15 billion-a-month growth rate. What happened: Revolving credit, such as credit cards, cooled off a bit in November, rising by 5.5% after a 10.9% gain in October. Nonrevolving credit, typically auto and student loans, picked up, rising 7.1% in November after a 6.5% gain in the prior month. The data does not include mortgage loans.
Markets are racked by turmoil, and there are signs the booming U.S. economy could slow down later this year. Yet the Supreme Court is reckoning with the lingering fallout from the financial crisis that rocked the global economy a decade ago. The top court on Monday attempted to resolve a legal question that could have broad ramifications on hundreds of thousands of Americans who are foreclosed on without a judicial process each year. A key issue in the matter is who or what can be considered a "debt collector." The justices were divided, but not into clear ideological zones. Chief Justice John Roberts and Justice Brett Kavanaugh, Republican-appointed conservatives who are typically business friendly, were among the most skeptical questioners of the respondent in the case, a law firm working on behalf of Wells Fargo.
The ongoing partial government shutdown will cut U.S. economic output by about 0.1 percent every two weeks, the chairman of the White House Council of Economic Advisers said, Bloomberg News reported. “Our estimate is that GDP in the first quarter could go down by about a tenth if this were to resolve in the next few weeks,” CEA Chairman Kevin Hassett said yesterday. While it wasn’t immediately clear whether Hassett was referring to the level of GDP or the annualized pace of growth, his estimate appears to be broadly in line with those from private forecasters. Earlier this week, Macroeconomic Advisers by IHS Markit lowered its forecasts for fourth-quarter and first-quarter growth each by 0.1 percentage point on the assumption the shutdown will last for three weeks. JPMorgan Chase & Co. analysts estimated that each week of the shutdown will reduce GDP growth by about 0.1 to 0.2 percentage point, and the drag should mostly reverse once the government fully reopens.
The federal courts have largely maintained normal operations during the current government shutdown so far, but that could change quickly if the stalemate lasts beyond next week, the Wall Street Journal reported. Officials at the Administrative Office of the U.S. Courts say that the judiciary will begin to face significant challenges after Jan. 11 if funding hasn’t been restored. The courts have been dipping into court fees and other sources that aren’t dependent on new congressional appropriations, but those funds have their limits. If the shutdown continues, federal courts will have to come up with plans for managing reduced operations, and funding could be in jeopardy for jurors, court reporters, public defenders and some court staffers, as well as for some supervision and other services the courts provide to offenders on probation. The Supreme Court faces the same funding timeline as the rest of the courts, a high-court spokeswoman said yesterday. However, the courts won’t simply shut down, said David Sellers, a spokesman for the Administrative Office. Federal law allows courts to continue their work to the extent it is necessary to support the exercise of judicial powers — a phrasing that lets judges continue issuing rulings and keeping some critical cases moving through the pipeline.
The U.S. banking system has strong capital and liquidity and is well-positioned to manage more adverse market conditions, a spokesman for the Office of the Comptroller of the Currency said yesterday. In a statement to Reuters, Bryan Hubbard said that the banking regulator was monitoring the effects of falling stock markets on the nearly 1,300 institutions it oversees and would share any relevant systemic information with fellow supervisors through the appropriate interagency forums. U.S. stocks posted a loss in 2018 for the first time in a decade due to fears over a weakening global economy and the U.S.-China trade war, sparking fears turmoil could spread to other parts of the financial system. “The federal banking system ... is strong with capital and liquidity near historical highs and improved earnings and risk management. From this strength, the federal banking system is well positioned to manage more adverse market conditions,” Hubbard said in the statement. He added that OCC expects supervised institutions to understand exposures within their portfolios and take appropriate action to mitigate any risks. These could include adverse effects on liquidity, pricing, or terms for corporate loans and bonds, he said.