May 16, 2023
🌮🌮 Happy Taco Tuesday. Big day on the Hill with former Silicon Valley Bank CEO Greg Becker and executives from failed bank Signature set for a grilling before the Senate banking committee.
Today's newsletter is 947 words, 4 minutes.
1 big thing: The not-so-secret history of U.S. default
You hear it everywhere. "The U.S. has never defaulted on its debt."
- It’s not true, Matt writes.
- By the most basic definition of default — not making agreed-upon payments to those you owe — the U.S. has indeed defaulted, arguably on multiple occasions.
Why it matters: The talking point on the pristine U.S. credit record is a key bit of rhetoric for those arguing that not raising the debt ceiling — which would ultimately mean missing payments the government owes — represents an unprecedented economic risk.
- But in reality, the U.S. has failed to meet obligations in the past.
What they're saying: "Since 1789, the United States has paid all of our bills on time. It should stay that way," Treasury Secretary Janet Yellen said in April.
- "In our history, we have never defaulted on our debt or failed to pay our bills," White House press secretary Karine Jean-Pierre, said in April.
Fact check: There have been at least three, admittedly distant, times when the U.S. failed to keep its financial word.
- 1814: Amid war with the British, the Treasury couldn't come up with the scratch to service its debts, with Treasury Secretary Alexander J. Dallas admitting, "The dividend on the funded debt has not been punctually paid; a large amount of treasury notes has already been dishonored."
- 1933-34: President Franklin D. Roosevelt's refusal to repay Treasury bondholders with gold, as agreed to when the securities were sold, represents an abrogation of the contract that qualifies as a default.
- 1979: The Treasury briefly missed payments on roughly $122 million in Treasury bills, according to the Wall Street Journal, citing issues with computer technology. Investors were repaid, with interest.
For the record, most experts do think failing to raise the debt ceiling could be anywhere from a serious-to-massive problem for the economy and financial markets — especially the longer it persists past the x-date.
2. Catch up quick
3. Bad time to buy a house, say a lot of people
A record share of Americans believes it's a bad time to buy a house, according to a Gallup survey out this morning, Emily writes.
- The percentage hasn't been this high since Gallup started asking the question in 1978.
The big picture: The decision to buy a house is personal, and dependent on one's own finances and location, of course — still, the survey respondents have a point.
- Home prices have increased by an astonishing amount over the past three years: The median sale price of a U.S. home was up 32% in the first quarter of 2023 from the first quarter of 2020, per census data.
- Meanwhile, mortgage rates have soared.
- Oh, and did we mention the lack of available inventory, as current homeowners feel locked into their legacy low mortgage rates and are reluctant to sell?
Zoom out: Until 2022, a majority of Americans have told Gallup it was a good time to buy — even through the housing boom and bust of 2005-2008.
- That changed last year as mortgage rates started to rise. Only 30% of Americans said it was a good time to buy in 2022 — a 23-point drop from the year before.
- That the number fell even more in 2023 is striking. Now only 21% of Americans think it's a good time to buy.
But, but, but: When Gallup asks people what they think is the best long-term investment, real estate still tops the list, said Jeff Jones, senior editor of the Gallup poll.
- "With a longer view, people still endorse real estate."
4. Charted: The mortgage refinancing boom and bust
Behold, the great pandemic refinance boom, so named by the New York Fed's blog in a post yesterday.
- It's the period from the second quarter of 2020 through the fourth quarter of 2021 when 14 million homeowners refinanced their mortgages, Emily writes.
Why it matters: That boom is over, thanks to high mortgage rates, but its benefits will be felt for years by those who took advantage of the COVID era's record low borrowing costs.
- About 5 million of those who refinanced extracted cash, totaling $430 billion.
- And the rest? They lowered their monthly payments — a $24 billion annual reduction in housing costs, at a time of soaring inflation. That's a huge win.
5. Juvenile delinquencies
Signs of economic stress are flaring up for young adults, according to a new report from Moody's Investors Service, Emily writes.
Why it matters: High inflation was already hurting younger folks, who have less wealth and lower savings and earnings. Now as credit starts to tighten, things could be more painful.
Driving the news: Credit card delinquencies are ticking up across the board, but especially for those ages 18-39, according to newly released data from the New York Fed.
- The delinquency rate on credit cards for those ages 18-29 was 8.3% in the first quarter, compared to 5.1% a year ago (but still lower than pre-pandemic).
- For those 30-39 it was 6.27%, slightly higher than before COVID.
- For those 40 and up, the delinquency rate is around 5% or less.
Zoom in: Younger consumers "have been piling on debt" this year, per the Moody's report.
- Younger borrowers saw the fastest growth last year in both credit card and auto loan balances, per the New York Fed data.
- "The tightening of lending standards will hit this particular cohort the hardest," said Claire Li, senior analyst at Moody's.
What we're watching: student loans. The Biden administration said it's lifting the pause on payments no later than June 30. That could mean more financial stress for these borrowers, who haven't had to make a loan payment in years.
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Axios Markets was edited by Kate Marino and copy edited by Mickey Meece.