You may think you’re earning more money than your parents, but when adjusted for inflation, you’re probably earning less.
But despite rising inflation and interest rates, this has not stopped Americans from spending.
Perhaps the new plan for student debt cancellation by President Biden will bring some reprieve, but this won’t take effect until 2025—or at least it will if the US government averts a shutdown.
Here’s a rundown of some of the headlines that made waves in the financial world.
Bankman-Fried’s trial begins.
The six-week trial of Sam Bankman-Fried will start on Tuesday with jury selection.
Once hailed by Silicon Valley investors and Washington lawmakers as the responsible face of cryptocurrencies, the trial is the last chance for the erstwhile crypto billionaire to vindicate himself.
Bankman-Fried is charged with embezzling billions of dollars entrusted to his care, defrauding millions of consumers at his cryptocurrency exchange, FTX, and dozens of the biggest investors in the world.
The devastation caused by FTX’s $40 billion bankruptcy in November 2022 has been compared to that of Enron, while Bankman-Fried’s purported fraudulent offences have been compared to the exploits of renowned Ponzi scheme mastermind Bernard Madoff.
His alleged plan was dubbed “one of the biggest financial frauds in American history“ by US prosecutors.
US government narrowly averts shutdown.
The US Congress has voted to avert a government shutdown by approving a last-minute measure that funds the government through mid-November, but excludes billions of dollars in aid for Ukraine.
Only nine Republicans opposed the measure, as the Senate voted 88-9 on Saturday night to approve a deal that the House of Representatives had negotiated earlier in the day.
President Joe Biden signed the agreement before the midnight deadline, averting a government shutdown that would have resulted in the furloughing of hundreds of thousands of employees and the cessation of essential government operations.
The agreement represents a dramatic turnabout in Washington, where just one day earlier, a shutdown seemed inevitable.
A government closure would result in the furlough of hundreds of thousands of federal employees, the nonpayment of troops, and the cessation of a vast array of government services.
Americans still spending, despite inflation and interest rates.
Interest rates are up, unemployment is still high, and household savings have shrunk.
By now, consumers ought to be spending less. But this is not the case with many Americans.
This summer saw a surge in the experience economy as well. In the first half of 2023, Ticketmaster sold over 295 million event tickets, an increase of about 18% from the previous year, while Delta Air Lines reported record income in the second quarter.
Family spending, the key engine of the country’s economic expansion, is still strong. In August, Americans spent 5.8% more than they did a year earlier, far surpassing the inflation rate of less than 4%.
Economists and financial analysts are sounding the alarm that consumers are prioritizing immediate necessities over long-term objectives. In August, credit card debt in the US hit an all-time high when it surpassed $1 trillion, with the average US consumer carrying $5947 in credit card debt.
Losses mount for crypto bears as Bitcoin surges past $28k.
Bitcoin (BTC) prices surpassed $28,000 for the first time in over a month, as analysts cited ETF optimism and seasonality as reasons for the gains. Data from Coinbase showed that crypto bears lost about $94 million in wagers against rising prices.
Ethereum surpassed $1,700, whereas both BNB and Cardano gained 3.3%. Solana’s tokens led significant gains at 14.5%, primarily due to renewed optimism among traders regarding the network.
In the previous bull market, $28,500 acted as a key support level. In the coming weeks, it may transform into a level of resistance, making it a significant price level to monitor.
Biden makes new plans for student debt cancellation.
The Biden administration unveiled a new proposal to forgive student loans. The Supreme Court struck down the policy in June, concluding the president didn’t have the power to terminate up to $400 billion in consumer debt without prior authorization from Congress.
In its new plan, the federal government will prioritize certain categories of borrowers, including those experiencing financial hardship and those who began repayment decades ago. Its original proposal excluded only student loan borrowers with incomes exceeding $125,000 for individuals or $250,000 for couples.
In contrast to his first attempt to swiftly forgive student debt through an executive order, Biden has now turned to the lengthy rulemaking process. Consequently, creditors may not receive relief until July 2025.
Forgiving up to $20,000 in student debt for tens of millions of Americans was intended to facilitate the transition back into repayment. However, shortly after President Joe Biden unveiled his plan in August 2022, conservative organizations and Republican states filed suits to obstruct the relief.
Graduates today earn less than their parents.
According to recent Self Financial research, graduation salaries have dropped by more than 10% in the last 40 years after accounting for inflation.
On average, graduates in 1984 made $23,278 (equivalent to $68,342 in current currency), which is approximately $7,254 more than graduates in 2023.
Gen Z and millennials confront more financial difficulties than their parents had as young people, in addition to the skyrocketing costs of housing and food. Their wages are not just less than what their parents made in their 20s and 30s, but they also have higher student debt liabilities.
Wall Street’s attitude towards ESG investing is shifting.
Several fund managers are starting to reduce their commitments to ESG (environmental, social, and corporate governance), and a lot of renewable energy projects are being shelved or delayed.
According to funds research firm Morningstar, investors withdrew $635 million from U.S. sustainable funds in the second quarter of this year. This results in a $11.4 billion outflow from these sustainable funds over the course of the previous year.
There is still a disconnect between the amount of money invested in renewable energy and the recommendations made by various organizations. In the last 3 years, more ESG funds have been unwound in the United States than before.
In September, the world’s asset manager and staunch supporter of ESG investing, Blackrock, notified regulators that it was shutting down two sustainable emerging-market bond products. StateStreet and Columbia Threadneedle Investments amongst amongst others have also shut down more than a dozen ESG funds.