Abstract: By analyizing economic data it is clear that we are in the early stages of another financial crisis similar in scope to 2008's. The data surrounding debt and consumer savings all point to the same eventuality, that even without tariffs the economy has been held up by a string since before covid.
Introduction: While tariffs are at the forefront of everyone's conversations surrounding a possible recession, something much darker has been brewing in the background. Debt. In 2008 banks failed primarily due to Mortgage Backed Securities and Collateralized Debt Obligations failing as a result of defaults on mortgages rising. None of the people responsible ever faced any true consequences and many are still part of the financial system to this day (Scott Besset). I've been doing my own personal due diligence on the state of the economy and have come to the conclusion that no one learned their lesson. As a result, they're making the same mistakes all over again.
What banks are doing: CDO's and MBS's are extremely profitable for banks and investment firms to hold. Theyre basically large tranches of debt stacked together and sold off as a bond. After they failed in 2008 you would think that the banks would stop investing heavily into these instruments since they collapsed the world economy 17 years ago. They haven't. Speaking to a head portfolio manager at BNY I learned they're still heavily invested in these and have added in more consumer debt, credit card debt, and business loan debt called Collateralized Loan Obligations. While the manager seemed optimistic about the investments something he said stuck out to me when I asked about the rising rates of defaults.
"The Bank will be ok"
The BANK will be ok. He danced around it but admitted they were concerned over the rising rates, but the emphasis on the bank being ok made me realize, "what about everyone else?". The banks know that they will be bailed out if something happens, they were bailed out in 2008, and during covid JPOW turned the money printer on to keep things moving. They're banking on the idea that even though the bonds are known to be dangerous, the government will step in if things go south.
This is the "Too big to fail" mindset.
Debt Defaults: Everythings expensive. We went through 2 years of high inflation. While companies burned through the money they got during the covid years they are now laying off workers en masse, especially in the tech sector. This combines into people putting more and more on their credit cards due to inflation making things more expensive, then not being able to pay off those purchases since they were laid off.
This is the data from FRED
https://preview.redd.it/6516pl79nwwe1.png?width=1320&format=png&auto=webp&s=658d8292a78f506723ce5c0b8d3395ac3b227e97
While in the years following 2008 credit card defaults/deliquencies fell (sharply after covid due to stimulus and not going out and buying things), they've recently begun to rise, coinciding with inflation rising. This directly affects the CDO's and CLO's that banks are so in love with.
Consumer Savings: People aren't saving as much as they were pre pandemic, the personal savings was around 6% pre-covid, now its bouncing around 3%.
https://preview.redd.it/dxypa2ecnwwe1.png?width=1320&format=png&auto=webp&s=a602208dcd85fe32536bb6fbfb18957b42cb86cf
This leads me to believe that people have less and less money in savings, causing them to put more on credit cards.
Tangent, klarna terrifies me, putting a burrito on afterpay is dystopic.
Consumer Debt levels: Consumer debt is hitting all time highs, its not going to slow down anytime soon, there's too much money in it for banks to NOT lend to people.
https://preview.redd.it/hnsvw0bdnwwe1.png?width=1320&format=png&auto=webp&s=63f8fc29b8d04c94ae114cb0df38c7e82f588342
GDPnow Report: I know the markets are disconnected from logic at this point, but the AtlantaFed's GDPnow has been predicting negative growth since Feburary, the most recent estimate is -2.5% down from a 3.5% growth in January. I think -2.5% is a little low, but even if its off by a full 1% its still negative growth for the quarter. Proof that the economy is stagnating.
https://preview.redd.it/ultemjwenwwe1.png?width=650&format=png&auto=webp&s=858aa22df07f1078d3b602670eb746f7ab282d84
Conclusion, Im just an Econ major. My professors all share the same view, that we are in the early days of a recession. All this evidence isn't even accounting for the volatility of the current climate surrounding tariffs. I lost my job due to DOGE along with 200,000 other federal employees. Theyre paying us out until September to try and keep government spending up in hopes that it wont fuck with the GDP too much.
TLDR: Puts will print In the coming months
Heres my positions: don't make fun of them, I'm a college student, I keep all my money in Pokémon cards.
https://preview.redd.it/zrhob9bgnwwe1.png?width=2116&format=png&auto=webp&s=41977263aa49a42c10d5cf2cd5f1a1271964c8f9