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More than a decade ago, the U.S. and eventually the world suffered from the proliferation of subprime loans. Unethical real-estate brokers hawked adjustable-rate mortgages to unsuspecting customers. As debt defaults piled up, the housing market couldn’t sustain itself and collapsed. But the next big event could be the prime-lending crisis.

Similar to the situation with subprime loans, the prime-lending crisis will involve an imbalance in supply-demand dynamics. The difference is the catalyst’s trajectory. Subprime loans ultimately blew up because too many people couldn’t afford their homes. In the prime-lending crisis, too few people can afford their homes.

We’re already seeing the evidence of this rising dilemma. For instance, the average price of new homes sold has skyrocketed well past pre-recession highs. On the other hand, real earnings haven’t gained much traction. True, wages are up from a decade ago, but with rising commodity/energy prices and general cost of living expenses, American families are increasingly behind the eight-ball.

This situation necessarily means that the bulk of current real-estate prices originate from sources other than average economic activity. What I mean is that people aren’t going to a nine-to-five office job, and saving up for a home. No, the housing market reflects that only the very affluent can participate in the buying spree.

 

Prime-lending Crisis will Trickle Down to Everyone

For now, the coming prime-lending crisis hides itself from public view because of distorted economic statistics. For instance, most people focus on the multi-year low unemployment rate. What they should assess is the labor participation rate, which has dangerously fallen to unfathomable lows.

It also helps that – if you’ll excuse my language – we live in a bullsh-t economy. Today, you can make more money broadcasting yourself playing video games than doing something productive. And if you think I’m joking, check out YouTube, and search for “racing simulators.”

Not only will people pay you money to play video games, you can also achieve corporate sponsors.

Moreover, we’re so dismissive about prior generations’ accomplishments and achievements. I can’t recall how many times I’ve encountered Millennials and Gen-Z types who promise the world, but can’t deliver dirt. It’s remarkable that we’re still standing. But these are the folks that will lead our society.

Put another way, we suffer from an upside-demographic crisis. At least with subprime loans, brokers advantaged lesser-educated people. As the old saying goes, there’s a sucker born every minute.

But in the prime-lending crisis, we will only have a few people that can afford to live reasonably-comfortable lives. And these, as I mentioned, are not the best and the brightest. Instead, they’re the arrogant and the useless.

Such an unsustainable demographic balance will correct itself fiercely sooner or later.

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