As this is written, it appears we have a tentative agreement to deal with the debt limit which was struck over the weekend to avoid a debt default next week. The deal was reached between President Biden and House Speaker Keven McCarthy and still must be approved by Congress before it becomes law.

Actually, Mr. Biden and McCarthy didn’t agree to raise the debt ceiling by a specified amount; instead, they merely agreed to “suspend” the debt ceiling until January 2025, after the next presidential election. So, in effect, there is no debt ceiling now. This move did not surprise me. We all knew they would come up with something to avoid a debt default.

Which brings up another question: What actually constitutes a debt default? Not surprisingly, there are different answers to this question. While it looks like a debt default has been avoided for now, as taxpayers who fund everything our government spends, I think it is important for us to understand what a debt default is. So, that’s what we’ll talk about today.

But before we get to that discussion, let’s briefly review the latest key report on the economy. The Commerce Department reported last week that 1Q Gross Domestic Product rose at an annual rate of 1.3% versus 1.1% reported in its previous estimate in April.

The news today is dominated by the fear that the US government will run out of money next week and be unable to pay its bills after June 1. The media is warning that the US could default on its debt for the first time in history.

That assumes, of course, that Republicans and Democrats don’t get their act together and compromise on a new higher debt limit by June 1, which I still believe is possible if not likely.

But even if the GOP and the Dems don’t reach a compromise by the deadline next week, it is still possible for the government to continue to operate and pay at least some of its bills beyond June 1. I realize this is not what we’re being told by the media and Treasury officials, and that’s why I’ll explain it today.

Hint: some key facts and figures are being ignored. I’ll tell you what those are below.

If I asked you how much money does the average American household spend per year or month, what would you say? I’ll bet you would have to guess – I know I did. With many households earning $40,000 or less per year, and with others making hundreds of thousands each year, what would you guess is the average? You might just say, “I have no idea.”

Well, the US Department of Labor studies these kinds of things, among many others, and today I’ll share some interesting facts and figures on how much the average family/household spends each year, including generally what they spend it on.

OK – make your guess on what the average household spends each year, and I’ll share the answers with you below. Let’s see how you do.

In his effort to impart more “social justice” into the homeownership market, President Biden has implemented a new policy which penalizes home buyers with good credit and rewards those with bad or less than good credit. This makes no sense, of course.

The overall impact of Mr. Biden’s latest scheme is to increase the cost of credit for those with good credit and lower the cost of credit for those with bad credit. Here’s how it’s supposed to work.

The Federal Housing Finance Agency just announced it will change the loan-level pricing adjustment fee on homebuyers. A loan-level pricing adjustment (LLPA) fee is a fee that is charged to mortgage borrowers who use a conventional mortgage, and the fee is based on the borrower’s level of risk.

The LLPA fee can vary depending on factors such as the borrower’s loan-to-value (LTV) ratio, credit score, type of occupancy and the number of units in the property. Typically, borrowers pay LLPAs in the form of higher mortgage interest rates and or fees.

The Federal Housing Finance Agency recently announced it will hike the loan-level pricing adjustment fee on homebuyers with high credit scores and redistribute those funds to borrowers with low credit scores. 

That’s not an insignificant change.

The Commerce Department reported last week that the US economy grew at an annual rate of 1.1% in the first quarter, which was below the pre-report expectation of 2%. While the report was below the pre-report consensus, it was still solidly positive.

The 1Q expansion followed a strong 4Q in which GDP climbed 2.6%, to end a year that saw a 2.1% overall increase in the economy. The latest report showed that consumer spending, the main driver of the economy, rose by a solid 4.2% in the 1Q, but other factors caused the final reading to be below that level.

Most forecasters continue to predict a recession in the second half of this year. But for that to happen, we’ll have to see a marked drop-off in consumer spending. And currently, there are few signs of that happening. We’ll have to see what happens, of course, but I see no reason to assume a recession is inevitable later this year.