Student Debt: The Next Economic Bubble???

It's becoming clearer that the next crash-precipitating economic bubble may well be the hyper-inflating rate of accumulated student debt that today's college students are being saddled with in their decreasingly successful bid to prepare themselves for high paying jobs, and a future of living what we used to call the typical "American Dream". An article in today's Washington Post recounted the difficulties of recent college graduates in saving enough money for down-payment for a first-time purchase of a home, or of even qualifying for a mortgage because of their large student loan payments tipping the scales against their eligibility, verses their disappointingly small entry-level jobs' salaries. This has dire consequences for all of us since first-time buyers are a significant driving factor in the over-all rise in home buying statistics, which is traditionally the major driving factor in the statistics that indicate any rebound from the previous recession.

Our present rather anemic recovery has been substantially driven by a resurgence in home-buying. But this has been largely attributed to investors who are driven by the considerably deflated prices of homes in most regions across the country, and who foolishly believe that the recent history of deflated markets rebounding to previous levels, and even more, once a recession ends, must happen once again. So their "smart money" investments in housing is merely a stock-piling of houses that they feel are about to rise dramatically in value, which they intend to dump as soon as they find a buyer who'll pay the new higher price. There's only one catch; what if that buyer never shows up?

This Washington Post article indicated that the student debt crisis may be severe enough to largely eliminate the first-time buyer market that the housing market as a whole depends upon, leaving many of these speculative investors holding onto these houses for quite a while, without buyers. And if these speculative investors have borrowed heavily to buy them, counting on quick sales to fund their own debt payments, they may be forced to dump some of their houses on the market at prices below their original purchase price, in order to raise the cash to pay the loans for their remaining investment homes. If enough speculators find that this is necessary, it could precipitate another housing price collapse, deflating prices even more than they were before this recent upturn. This whole process would create more deflationary pressure on the economy as a whole, either "requiring" the government to create more inflationary "stimulus", or risk allowing us to descend into an all out deflationary depression, which they have been desperately trying to avoid since the last housing bust in 2006. Either they are too ignorant, or too foolish to realize that a deflationary depression is inevitable once the conditions are ripe for it, as in the late 1920's, and again in 2007. All they're accomplishing with all this inflationary spending on these stimuli is to postpone the inevitable, and the longer we wait to face up to it all, the exponentially worse it will all be.

So, it seems that our very anemic economic recovery could be on life-support again sooner
than we expected.