After analyzing the last few financial collapses in the USA and how they were caused, there are some similarities with the past and the present which cause ongoing concerns.  Here is a short chronology of some of the significant financial crises in the United States over the past few decades, along with brief descriptions of their causes:

1. Jimmy Carter Economic Malaise Crisis

The Jimmy Carter era of the late 1970’s was marked by a combination of high inflation, gas shortages, and economic challenges. These issues had a significant impact on the American people, leading to economic uncertainty, reduced purchasing power, and disruptions in daily life. The era also highlighted the importance of energy policy and the need for greater energy independence in the United States. The economic crisis allowed Reagan to win in one of the greatest presidential election landslides in US history.

2. Savings and Loan Crisis (1980s):

Cause: This crisis was triggered by the widespread failure of savings and loan associations (S&Ls) due to risky lending practices, inadequate regulation, and a mismatch between short-term liabilities and long-term assets.

3. Dot-com Bubble Burst (2000):

Cause: The burst of the dot-com bubble was driven by the excessive speculation and overvaluation of internet-related companies during the late 1990s. Many companies with little or no profits saw their stock prices plummet. This was the largest market crash in history in adjusted dollars during the Clinton presidency. Overall, when the Fed raised rates quickly in 2000-2001, the costs of borrowing compounded the crash of the Internet sector which would eventually become profitable several years later.

4. Subprime Mortgage Crisis (2007-2008):

Cause: The subprime mortgage crisis was primarily caused by the proliferation of high-risk mortgage lending, securitization of these subprime loans, and the global financial system's exposure to complex financial instruments based on these risky assets. The crisis led to the collapse of major financial institutions and a severe recession. Much of the blame was put on the Clintons and Bush for allowing easy mortgages to anyone who wanted a home. The middle class was hit hardest by this crash.

5. Global Financial Crisis (2008-2009):

Cause: The global financial crisis was a result of the interconnectedness of the global financial system and the contagion effect from the subprime mortgage crisis. The failure of Lehman Brothers, a major investment bank, triggered a panic in financial markets, leading to a severe economic downturn and stock market correction.

6. European Sovereign Debt Crisis (2010-2012):

Cause: This crisis was triggered by high levels of government debt in several European countries, such as Greece, Ireland, and Portugal. Weak economic fundamentals, coupled with concerns about the sustainability of these countries' debt, led to a crisis in the Eurozone.

7. COVID-19 Pandemic (2020):

Cause: The COVID-19 pandemic, caused by the novel coronavirus, led to a global health crisis and an economic downturn. Lockdowns, travel restrictions, and reduced economic activity resulted in job losses, business closures, and disruptions to supply chains. Governments implemented various stimulus measures to mitigate the economic impact. Inflation began to seep into the US economy in 2021 and has expanded to where the COVID financial effects are still predominant compounded with the poor energy policy and related price inflation.

Each of these financial crises had unique underlying causes, but they all involved elements of risk-taking, rate hikes, equity loss, inadequate regulation, and systemic vulnerabilities within the financial system. The response to these crises often included government interventions, central bank actions, and regulatory reforms aimed at stabilizing the economy and preventing similar crises in the future but sometimes the government made things worse.

Historically, when mortgage interest rates in the United States rise above 7 percent, several financial and economic troubles can come into play:

1. Reduced Affordability: Higher mortgage interest rates increase the cost of borrowing for homebuyers. This can result in reduced affordability for prospective homebuyers, making it more challenging for them to qualify for mortgages and afford monthly mortgage payments. As a result, demand for homes may decrease, which can lead to a slowdown in the housing market.
2. Lower Home Values: When affordability decreases due to higher interest rates, home sellers may need to lower their asking prices to attract buyers. This can put downward pressure on home prices, and in some cases, it may lead to a decline in real estate values.
3. Impact on Housing Market: Rising mortgage rates can lead to a slowdown in the housing market, with fewer home sales and potentially a rise in inventory as homes take longer to sell. This can have a ripple effect on related industries, such as construction, home improvement, and real estate services.
4. Refinancing Activity: Higher interest rates often reduce the incentive for homeowners to refinance their existing mortgages. Refinancing activity tends to decline when rates are higher, which can impact the mortgage lending and banking sectors.
5. Economic Slowdown: Elevated mortgage rates can have broader economic implications. Higher borrowing costs can reduce consumer spending, especially on big-ticket items like homes and automobiles. This, in turn, can contribute to an economic slowdown or recession.
6. Impact on Financial Markets: Rising interest rates can also impact financial markets. Bond prices tend to fall when rates rise, which can affect the performance of bond portfolios and pension funds. Additionally, higher rates may lead to shifts in investor preferences, potentially affecting stock market performance. Some US banks recently lost everything in bonds in 2023.
7. Central Bank Response: In response to economic slowdowns or financial market turmoil caused by significantly higher interest rates, the Federal Reserve may adjust its monetary policy. The central bank can lower short-term interest rates and implement other measures to stimulate economic activity.
8. Crime – The crime wave has expanded since 2021 and the will of large city officials to protect real estate is weak at this time. Thus, commercial real estate is worth much less without the protection of peace officers from theft and vandalism.

The Inflation Factor

If you have inflation, interest rates on mortgages at 7% or more, short-term treasuries yielding 5%, and credit card APRs at 25%, several economic and financial dynamics can come into play, affecting the economy, the budget, and deficits:

1. Economic Impact Totality Effects:
   • Consumer Spending: Higher credit card APRs at 25% would significantly increase the cost of carrying credit card debt. This could lead to reduced consumer spending as individuals allocate more of their income to debt servicing rather than discretionary spending. American families have over 1 Trillion in credit card debt in 2023.
   • Housing Market: Mortgage rates at 7% would make homeownership less affordable, potentially slowing down the housing market. Fewer people may be able to qualify for mortgages or afford higher monthly payments, which could lead to decreased demand for homes.
   • Savings and Investments: Short-term treasuries yielding 5% would offer a relatively attractive safe haven for investors. This could lead to a shift of funds from riskier investments to government bonds, potentially impacting the performance of other financial markets.
   • Business Investment: Higher interest rates could increase the cost of borrowing for businesses, potentially slowing down capital investment and expansion.
   • Inflation Expectations: Persistent inflation, especially if it's not effectively managed, can lead to higher inflation expectations among consumers and businesses. This can result in further upward pressure on prices.
   • Student Loans and Auto Loans – Many families are burdened with interest payments that are up 100% in three 3 years which is ripping discretionary spending from main street.
2. Government Budget:
   • Interest Payments: As interest rates rise, the cost of servicing the national debt increases. The U.S. government would need to allocate a larger portion of its budget to pay interest on outstanding debt, potentially crowding out spending on other priorities.
   • : Rising interest rates can impact deficits by increasing interest expenses while potentially slowing economic growth and reducing tax revenues. This combination can lead to larger budget deficits if not offset by other fiscal measures.
3. Deficits:
   • Trade Deficits: Higher interest rates can influence exchange rates and potentially lead to a stronger U.S. dollar. A stronger dollar can make U.S. exports more expensive for foreign buyers, potentially widening the trade deficit.

Closing Thoughts on Financial Concerns

In the end, many variables of economics could be devastating to the US economy. Here are a few.

1. Valuations - If housing prices dipped to low and home owner’s equity is wiped out.
2. Jobs - If too many jobs are lost by failing businesses.
3. Lending - If high interest rates kill the ability of individuals and companies to take investment risk
4. Dollar - If the dollar comes down against all other currencies and loses its value.
5. War – If the USA was dragged into a real conflict where economic war went beyond mere boycotts where the ability to conduct commerce and move people and things was severely weakened.
6. Human Capital - If immigration reduces the ability for working families to keep jobs and pay bills due to a mass influx of cheap labor into major cities.
7. Sovereign Debt - If the government debt is deemed too high to maintain where the debt service cannibalizes social security, disability, government jobs etc.
8. Energy Policy and Prices – Americans will continue to be disillusioned with high energy prices. Without a full spectrum approach to producing energy to create fuel and battery power, Americans will continue lose savings and income due to the broad effects of energy related inflation.

Overall, if the government, consumers or media exploit any one of these issues and consumers become panic-stricken where the issue of potential collapse went viral, this convergence of fear may cause a loss of faith in the USA economy, a weak US dollar, and the US stock markets could be weakened quickly. Just like COVID, another wild correction could ensue very quickly.

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Commissioner George Mentz JD MBA CILS CWM® is an international lawyer, speaker, educator, tax-economist, and CEO of the GAFM Global Academy of Finance & Management ®. The GAFM is a ESQ accredited graduate body that trains and certifies professionals in 150+ nations under CHEA ACBSP and ISO 21001 standards. Mentz is also an award winning author and graduate law professor of wealth management for a top U.S. law school.