Federal Reserve Chairman, Ben Bernanke was summoned to Capitol Hill this morning give Congress and update on the economy and any potential roadblocks in the way. Lately, whenever Bernanke speaks the market reverses course lower or continues lower and that is just what happened today. Gold and silver are taking Bernanke’s speech the hardest, both down 4% and 7% respectfully.
The Fed Chairman says that raising oil prices could temporarily raise inflation. However, he did say he expects growth to be higher than the second half of 2011. He also urged Congress of a new potential threat on the horizon, student debt. Bernanke said that student debt is rapidly rising with little being paid off, threatening to be a new bubble. Interestingly enough, Bernanke’s son racked up $400,000 in student debt from medical school.
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I have to agree with Bernanke on this one. Students are racking up record amounts of loan debt from school just to get out of school and find out there are not jobs and once you get out of school your loans begin charging interest. If you have no income, how do you expect to pay it off? This has long been a worry of government officials who have speculated that a potential bubble could be beginning yet nothing has been done to stop or slow this growing bubble.
If this bubble bursts we could be facing some deep, deep problems. Students would not be able to get a loan from the government because the interest rates would skyrocket and not to mention the default of people with student debt because they would not be able to pay off their loans due to no job and high interest rates. This bubble would affect students going to school, people with student loans and the US government who provides most of the loans. Talk about a nightmare!
Our recovery is already in a soft, delicate state. If it were to suffer another huge issue such as a student loan bubble, you would wish that recession was like 2008. I can not stress enough the potential damage that a debt bubble would have on this country, which has a very large debt problem at all levels. This would be a big deal because the student debt bubble could trigger other forms of debt to burst as well such as credit card debt. If there are two things Americans have it is a lot of student debt and credit card debt. A bubble in one or both of these could financially ruin the country.