Déjà
Vu? Auto-Loan Delinquency Hits New Record High For, Um … Some Reason
https://hotair.com/archives/2019/02/13/deja-vu-auto-loan-delinquency-hits-new-record-high-um-reason/
February 13, 2019
Is this a failure of the labor market? Or is it a rerun on a
smaller scale of the financial crash that created the Great Recession?
According to the Federal Reserve of New York, a record number
of Americans are three months or more behind on their car payments —
even worse than during the crash in the previous decade:
A record 7 million Americans are
90 days or more behind on their auto loan payments, the Federal Reserve Bank of
New York reported Tuesday, even more than during the wake of the financial
crisis.
Economists warn that this is a
red flag. Despite the strong economy and low unemployment rate, many Americans
are struggling to pay their bills.
That seems incongruous in an economy where growth has spread out
across the spectrum. Job creation has picked up, wages have increased in real
terms at the best rate since before the Great Recession, and the overhang of
discouraged workers finally appears to be evaporating. Still, the New York Fed
blames this on a lack of widespread impact from the economy:
“The substantial and growing number of
distressed borrowers suggests that not all Americans have benefited from the
strong labor market,” economists at the New York Fed wrote in a blog post.
Maaaayyyyybeee, but there’s something else
going on here too. In the same blog post, the NY Fed also notes that the
delinquencies are mainly coming
from subprime loans:
The flow into serious delinquency (that is, the share of
balances that were current or in early delinquency that became 90+ days
delinquent) in the fourth quarter of 2018 crept up to 2.4 percent,
substantially above the low of 1.5 percent seen in 2012.
In the chart below, we
disaggregate the delinquency rate by the borrower’s credit score at
origination. The relative performance between each credit score group stands
out immediately; but the increase in delinquency is most obvious among the
loans of the two groups of lower-score borrowers, shown by the blue and red
lines in the chart below. Borrowers with credit scores less than 620 saw their
transitions into delinquency exceed 8 percent in the fourth quarter (annualized
as a moving sum), a development that is surprising during a strong economy and
labor market. Meanwhile, the delinquency transitions among those with the
highest credit scores have remained stable and very low. In aggregate, the
increasing share of prime loans has partially offset the deteriorating
performance of the subprime sector.
That increase in the percentage of prime lending
as a hedge against subprime risk has only happened recently. Over the last
several years, subprime lending increased significantly, including in the
auto-loan market. By 2013,
subprime auto lending had increased 18.8%, while subprime auto-loan securities
had grown 63.5%. Many of those loans carried high
interest rates, sometimes as high as revolving credit-card rates.
Did people expect to marry credit risks to high interest rates and not get defaults?
The Washington Post buries the scope of that risk towards the
end of their article:
He noted that non-prime and
subprime auto loans increased from 28 percent of the market in 2009 to 39
percent in 2015, a reminder of how aggressively lenders went after borrowers
who were on the margin of being able to pay. More lenders are giving people six
or seven years to repay now vs. four of five years in the past, according to
Experian, another tactic to try to make loans look affordable that might not
otherwise be.
That’s a more accurate look at the aggressive nature of subprime
lenders, which also has echoes of the housing bubble and its 2008 collapse. The
NY Fed blames this mainly on “auto finance reporters,” but this chart shows a
more nuanced picture:
Half of all auto-finance reporter loans are subprime, which
accounts for $75 billion in outstanding debt. However, 25% of all auto loans
written by large institutions are also subprime — and that accounts for over
$97 billion in outstanding debt. Those “too big to fail” institutions
apparently didn’t learn any lessons, and neither did the investors who are
buying securities based on subprime debt. And how much backstop are the auto finance
reporters getting from the large banks?
The only potential good news is that auto-loan debt isn’t large
enough to knock out financial institutions — on its own, anyway. Does anyone
want to bet that subprime lending in the housing markets hasn’t followed along in the same
manner, though?
Three Ways to Avoid
Death of Dollar – and America
Three Ways to Avoid
Death of Dollar – and America
Little remains of the vast edifice of family, community and
faith relationships that once unified and anchored the American way of life.
These things have not disappeared from the horizon. They are still important,
but they have deteriorated. There is no more consensus about what they mean,
and they no longer serve as anchors of certainty.
One final anchor remains that does unite Americans. This
anchor survives despite everything. Now, even this seems targeted for
destruction.
The Last Anchor That Unites Everyone
It seems almost irreverent to affirm, but this last anchor is
the American dollar. Money is not supposed to be a social anchor. Other more
immaterial things—moral, principles, social bonds—should play this role.
However, today money bridges the seemingly unbridgeable chasms that polarize
the nation in a way nothing else can.
It is not just money. What unites Americans across the
board is the dollar, which is accepted everywhere either in its physical or
virtual form. No one questions its dominant role. As the world’s reserve
currency, it keeps global trade running while everything else falls apart. When
the other anchors fail, the dollar is always there to spend ways out of a
crisis.
Calling the dollar the last anchor does not mean that money
should or does run everything. The dollar is much more than a simple unit of
currency. It has immense symbolic importance since it is attached to notions of
national sovereignty, power and the American way of life. The dollar sustains
the myth of an America that will never fail. Thus, its fall is unimaginable to
many Americans who cannot visualize the country without it.
A Culture of Intemperance
However, there is a darker side to the dollar. It
facilitates the frenetic intemperance of a culture that
rejects limits. People want everything instantly and effortlessly, and the
dollar is ever-ready to supply the means to buy fleeting happiness. The
government offers its dollar subsidies to keep people dependent and happy. So
many others seem willing to sustain this frenzied lifestyle by contracting debt
of all types—private, corporate and governmental.
And the dollar is the ideal instrument for this frenzy. It
is stable, flexible and plentiful. What sustains the dollar is the world’s
willingness to buy U.S. Treasury bonds as a stable investment. There seems to
be no limit to the frenetic appetite for these debt dollars worldwide.
However, the dollar cannot solve the nation’s problems no
matter how many trillions are thrown at them. Like any currency, the dollar is
only as strong as the society that sustains it. With the decline of America’s
institutions, it is inevitable that the dollar too will face a decline—perhaps
radically and dramatically.
This dollar decline could happen in three different ways,
especially in these erratic times.
The Post-2008 U.S. Is Unprepared for New
Economic Crises
First, it can be destroyed by overconfidence. The grand
myth holds that the dollar cannot be destroyed because it has never been
destroyed before, despite several close calls.
There is no logic to this affirmation. All things temporal
can be destroyed, especially if they are neglected. However, the argument does
carry some weight in a culture that is run on emotions and feelings.
The fact is that the dollar is surviving on borrowed time.
The 2008 crisis provoked world finance leaders to use every tool in their
toolboxes to fix the crisis. Programs of zero or even negative interest, quantitative easing and other
vehicles have all run their course with limited effects. Overconfident
Americans need to take notice of dangers on the horizon.
Risks still abound in today’s global economy with trade
wars and political tensions. Many economic observers say that should a major
crisis hit the world economy, the financial systems could go down. And there
are very few new tricks that can be employed to stem the grave damage since the
root causes are not being addressed.
The mantra that the dollar is indestructible is hardly
reassuring.
The Very Real Debt Threat
The second factor that could cause the dollar’s decline is
debt in all its forms, especially American sovereign debt. When the world no
longer wants to buy American debt, the crushing burden of high interest rates
will have disastrous consequences for the nation.
The present governmental debt shows no sign of diminishing.
People have gotten used to the idea of annual $800 billion deficits. It will be
the new normal over the coming years as no Senator or U.S. Congressman wants to
take things off their shopping lists or face the firestorm of public opprobrium
for urging fiscal restraint.
Also, corporate debt now stands at nearly $9 trillion. The quality of
investment-grade bonds has deteriorated with many in or bordering on junk
category. This debt could trigger defaults, bankruptcies, burst bubbles of
immense proportions, all of which will weigh heavily on the dollar.
Similarly, personal debt has climbed back to pre-2008
crisis levels.
Indeed, ours is a world awash in debt of all sizes, types,
and nations. As the world’s reserve currency, the dollar cannot escape the
reverberations of a world financial crisis when major players default.
Sidelining the Dollar as the World’s Reserve
Currency
The final threat is more deliberate and targeted. As the
preferred unit of currency in commodity markets, the dollar is under direct
attack today through a new European Union mechanism called a Special Purpose Vehicle (SPV).
Everyone knows that no currency (or even basket of
currencies) can replace the dollar as the world’s reserve currency. However,
the European Union, China, Russia and Iran are seeking to create a
clearinghouse that will run circles around U.S. sanctions against the Islamic
Republic of Iran. They are setting up a credit system that will allow the
barter trading of commodities without the use of American dollars.
In this way, the dollar can come to be challenged and
sidelined by many major countries in international trade, and potentially even
losing its privileged status.
The Collapse of the Postwar Order
Any of these three ways can drag down the U.S. dollar from
its post-World War II throne. This would be disastrous since it would hasten
the collapse of the postwar order with no replacement save chaos and
disorder.
However, the greatest catastrophe would be for American
society. The collapse of America’s last anchor will increase the fragmentation
and polarization of the nation. All these three ways are avoidable if America’s
political leaders would apply themselves energetically and without further loss
of time toward addressing the root causes of the threats the nation faces. It
would involve the need for great restraint, sacrifice and new national
priorities.
The real problem facing America today is much more a moral
problem than an economic one. Society needs anchors, especially moral
anchors to unify the nation. When those anchors are gone, the nation is left
rudderless in a sea of chaos.
John Horvat II is a scholar, researcher, educator, international speaker,
and author of the book Return
to Order: From a Frenzied Economy to an Organic Christian Soceity--Where We've
Been, How We Go Here, and Where We Need to Go. He lives in Spring Grove, Pennsylvania, where he is the
vice president of the American Society for the Defense of Tradition, Family and
Property.
After Lehman's
Collapse: A Decade of Delay
Now that the 2018
midterms are over, folks can address the elephant in the room. If one tuned
into Fox Business midday on January 7, one heard legendary corporate raider
Carl Icahn dilate on the dimensions of the pachyderm, which he pegged at $250
trillion. That’s the size of worldwide debt. But can that be right -- it’s
more than eleven times the official U.S. federal government’s debt? And in case
you didn’t notice, it is a quarter of one quadrillion bucks. Pretty soon we’ll
be talking real money.
Icahn’s $250T quotation
for worldwide debt came out last year. On September 13, Bloomberg ran “$250
Trillion in Debt: the World’s Post-Lehman Legacy” by Brian Chappatta, who
draws off data from the Institute of International Finance’s July 9 “Global Debt
Monitor,” (to read IIF reports, one must sign up). Chappatta wonders how the
world’s central bankers can “even pretend to know how to reverse what they’ve
done over the past decade”:
[Central banks] kept
interest rates at or below zero for an extended period […] and used bond-buying
programs to further suppress sovereign yields, punishing savers and promoting
consumption and risk-taking. Global debt has ballooned over the past two
decades: from $84 trillion at the turn of the century, to $173 trillion at the
time of the 2008 financial crisis, to $250 trillion a decade after Lehman Brothers
Holdings Inc.’s collapse.
Chappatta breaks global
debt down into four categories: financial corporations, nonfinancial
corporations, households, and governments. In every category, global nominal
debt rose from 2008 to 2018, with the debt of governments hitting $67T. In the
important debt-as-a-percentage-of-gross-domestic-product measurement, three of
the categories rose while only financial corporations fell, “leaving their
debt-to-GDP ratio as low as it has been in recent memory.” Global banks seem to
be “healthier and more resilient to another shock.” After reporting on
worldwide debt, Chappatta then looks at U.S. debt.
What’s interesting about
debt in America is that as a percentage of GDP, households and financial
corporations have sharply reduced their debt. It is only government in America
that has seen a sharp debt-to-GDP uptick, and it was quoted at more than 100
percent of GDP. That’s rather higher than for all government debt worldwide.
Since the U.S. isn’t the
only nation that has been busy buying bonds and creating money, one might
wonder just how much money there is in the world. In June of 2017,HowMuch put out
“Putting the
World’s Money into Perspective,” which is a nice little graphic that puts the
category “All Money” at $83.6T.
In November of
2017, MarketWatch ran
“Here’s
all the money in the world, in one chart” by Sue Chang, who in
her short intro to the chart has some interesting things to say about global
money, including cryptocurrencies. She writes of “narrow money” and “broad money” and pegs the latter at
$90.4T, (or what Sen. Everett Dirksen would call “real money”.) If you want to
examine Chang’s chart more closely, I’ve “excised”
it here for your convenience; don’t miss the notes on the right
margin. (Because its depth is 13,895 pixels, you might want to just save the
chart to your computer rather than print it off.)
So, in addition to an
historic run-up in debt, there’s been a monster amount of new money created.
Chappatta calls it the “grandest central-bank experiment in history.” His use
of “experiment” is apropos, as one wonders whether the world’s central bankers
and their economists really know what they’ve been doing.
One ray of hope might
just be President Trump’s choice of Jerome Powell as Chairman of the Federal
Reserve, (Trump has such good instincts about people). One can get a sense of
the man from his January talk with David Rubenstein at the Economic Club of
Washington, D.C. (video and
transcript). It’s refreshing that Mr. Powell disdains the “Fed speak” used
by his predecessors.
Chappatta’s article is
quite worth reading, and it’s not very long. The charts are user-friendly,
although animated ones are a bit “creative.” The last section, “China Charges
Forward,” is especially worthwhile.
This is the post-Lehman
legacy. To pull the global economy back from the brink, governments borrowed
heavily from the future. That either portends pain ahead, through austerity
measures or tax increases, or it signals that central-bank meddling will become
a permanent fixture of 21st century financial markets.
Given those
alternatives, let’s try a little austerity. But austerity would entail spending
cuts, and Congress has a poor history in that regard. In fact, since fiscal
2007, the year before the financial crisis, total federal spending has gone
from $2.72T a year to more than $4T. While austere citizens deleverage and get
their fiscal affairs in order, Congress shamefully borrows and spends like
never before.
Congress’ solutions are
to bail out, prop up, and do whatever it takes to avoid reforming what it has
created. So they farm out their responsibilities to the Federal Reserve.
Indeed, in the July 17, 2012 meeting of the Senate Banking Committee (go to the
53:50 point of this C-SPAN video), Chuck Schumer told Federal Reserve Chairman
Ben Bernanke the following:
So given the political
realities, Mr. Chairman, particularly in this election year, I'm afraid the Fed
is the only game in town. And I would urge you to take whatever actions you
think would be most helpful in supporting a stronger economic recovery… So get
to work, Mr. Chairman. (Chuckles.)
So the Fed is “the only
game in town” because there are only monetary solutions for the economy, right?
There aren’t any fiscal solutions, as they would involve Congress, and Congress
is busy running for re-election, right? Sounds like you’re abdicating your
responsibilities, Chuck.
The last decade has been
an exercise in delay. Congress has avoided doing the difficult and unpopular
things that would help avoid future financial collapses. If Congress were
serious about balancing the budget, then social programs would be on the chopping
block, because that’s where the real
money goes.
"The Federal Reserve is a key mechanism for perpetuating this
whole filthy system, in which "Wall Street rules."
Wall Street rules
The Federal Reserve sent a clear message to Wall Street on
Friday: It will not allow the longest bull market in American history to end.
The message was received loud and clear, and the Dow rose by more than 700
points.
Hundreds of thousands of federal workers remain furloughed or
forced to work without pay as the partial government shutdown enters its third
week, but the US central bank is making clear that all of the resources of the
state are at the disposal of the financial oligarchy.
Responding to Thursday’s market selloff following a dismal
report from Apple and signs of a manufacturing slowdown in both China and the
US, the Fed declared it was “listening” to the markets and would scrap its
plans to raise interest rates.
Speaking at a conference in Atlanta, where he was flanked by his
predecessors Ben Bernanke and Janet Yellen, both of whom had worked to reflate
the stock market bubble after the 2008 financial crash, Chairman Jerome Powell
signaled that the Fed would back off from its two projected rate increases for
2019.
“We’re listening sensitively to the messages markets are
sending,” he said, adding that the central bank would be “patient” in imposing
further rate increases. To underline the point, he declared, “If we ever came
to the conclusion that any aspect of our plans” was causing a problem, “we
wouldn’t hesitate to change it.”
This extraordinary pledge to Wall Street followed the 660 point
plunge in the Dow Jones Industrial Average on Thursday, capping off the worst
two-day start for a new trading year since the collapse of the dot.com bubble.
William McChesney Martin, the Fed chairman from 1951 to 1970,
famously said that his job was “to take away the punch bowl just as the party
gets going.” Now the task of the Fed chairman is to ply the wealthy revelers
with tequila shots as soon as they start to sober up.
Powell’s remarks were particularly striking given that they
followed the release Friday of the most upbeat jobs report in over a year, with
figures, including the highest year-on-year wage growth since the 2008 crisis,
universally lauded as “stellar.”
While US financial markets have endured the
worst December since the Great Depression,
amid mounting fears of a looming recession
and a new financial crisis, analysts have been
quick to point out that there are no “hard”
signs of a recession in the United States.
Both the Dow and the S&P 500 indexes have fallen more than
15 percent from their recent highs, while the tech-heavy NASDAQ has entered
bear market territory, usually defined as a drop of 20 percent from recent
highs.
The markets, Powell admitted, are “well ahead of the data.” But
it is the markets, not the “data,” that Powell is listening to.
Since World War II, bear markets have occurred, on average,
every five-and-a-half years. But if the present trend continues, the Dow will
reach 10 years without a bear market in March, despite the recent losses.
Now the Fed has stepped in effectively to pledge that it
will
allocate whatever resources are needed to ensure that no
substantial market correction takes place. But this
means
only that when the correction does come, as it
inevitably
must, it will be all the more severe and the Fed will have
all the less power to stop it.
From the standpoint of the history of the institution, the Fed’s
current more or less explicit role as backstop for the stock market is a
relatively new development. Founded in 1913, the Federal Reserve legally has
had the “dual mandate” of ensuring both maximum employment and price stability
since the late 1970s. Fed officials have traditionally denied being influenced
in policy decisions by a desire to drive up the stock market.
Federal Reserve Chairman Paul Volcker, appointed by Democratic
President Jimmy Carter in 1979, deliberately engineered an economic recession
by driving the benchmark federal funds interest rate above 20 percent. His
highly conscious aim, in the name of combating inflation, was to quash a wages
movement of US workers by triggering plant closures and driving up
unemployment.
The actions of the Fed under Volcker set the stage for a vast
upward redistribution of wealth, facilitated on one hand by the trade unions’
suppression of the class struggle and on the other by a relentless and dizzying
rise on the stock market.
Volcker’s recession, together with the Reagan administration’s
crushing of the 1981 PATCO air traffic controllers’ strike, ushered in decades
of mass layoffs, deindustrialization and wage and benefit concessions, leading
labor’s share of total national income to fall year after year.
These were also decades of financial deregulation, leading to
the savings and loan crisis of the late 1980s, the dot.com bubble of 1999-2000,
and, worst of all, the 2008 financial crisis.
In each of these crises, the Federal Reserve carried out what
became known as the “Greenspan put,” (later the “Bernanke put”)—an implicit
guarantee to backstop the financial markets, prompting investors to take ever
greater risks.
In 2008, this resulted in the most sweeping and systemic
financial crisis since the Great Depression, prompting Fed Chairman Bernanke,
New York Fed President Tim Geithner and Treasury Secretary Henry Paulson (the
former CEO of Goldman Sachs) to orchestrate the largest bank bailout in human
history.
Since that time, the Federal Reserve has carried out its most
accommodative monetary policy ever, keeping interest rates at or near zero
percent for six years. It supplemented this boondoggle for the financial elite
with its multi-trillion-dollar “quantitative easing” money-printing program.
The effect can be seen in the ever more staggering wealth of the
financial oligarchy, which has consistently enjoyed investment returns of
between 10 and 20 percent every year since the financial crisis, even as the
incomes of workers have stagnated or fallen.
American capitalist society is hooked on the toxic growth of
social inequality created by the stock market bubble. This, in turn, fosters
the political framework not just for the decadent lifestyles of the financial
oligarchs, each of whom owns, on average, a half-dozen mansions around the world,
a private jet and a super-yacht, but also for the broader periphery of the
affluent upper-middle class, which provides the oligarchs with political
legitimacy and support. These elite social layers determine American political
life, from which the broad mass of working people is effectively excluded.
The Federal Reserve is a key mechanism for
perpetuating this whole filthy system, in
which “Wall Street rules.” But its services in behalf
of
the rich and the super-rich only compound the fundamental
and
insoluble contradictions of capitalism, plunging the system
into
ever deeper debt and ensuring that the next crisis will be
that
much more violent and explosive.
In this intensifying crisis, the working class must assert its
independent interests with the same determination and ruthlessness as evinced
by the ruling class. It must answer the bourgeoisie’s social counterrevolution
with the program of socialist revolution.
the depression is already here for most of us below the
super-rich!
Trump and
the GOP created a fake economic boom on our collective credit card:
The equivalent of maxing out your credit cards and saying look how
good I'm doing right now.
*
Trump criticized Dimon in 2013
for supposedly contributing to the country’s economic downturn. “I’m
not Jamie Dimon, who pays $13 billion to settle a case and then pays $11
billion to settle a case and who I think is the worst banker in
the United States,” he told reporters.
*
"One
of the premier institutions of big business, JP Morgan Chase, issued
an internal report on the eve of the 10th anniversary of the 2008
crash, which warned that another “great liquidity crisis”
was possible, and that a government bailout on the scale of that
effected by Bush and Obama will produce social unrest, “in light of
the potential impact of central bank actions in driving
inequality between asset owners and labor."
*
"Overall, the reaction
to the decision points to the underlying fragility of financial markets,
which have become a house of cards as a result of the massive inflows of
money from the Fed and other central banks, and are now extremely
susceptible to even a small tightening in financial conditions."
*
"It is significant that what the Financial Times described
as a “tsunami of money”—estimated to reach $1 trillion for the year—has failed
to prevent what could be the worst year for stock markets since the global
financial crisis."
*
"A
decade ago, as the financial crisis raged, America’s banks were in
ruins. Lehman Brothers, the storied 158-year-old investment house,
collapsed into bankruptcy in mid-September 2008. Six months earlier, Bear
Stearns, its competitor, had required a government-engineered rescue to
avert the same outcome. By October, two of the nation’s largest commercial
banks, Citigroup and Bank of America, needed their own government-tailored
bailouts to escape failure. Smaller but still-sizable banks, such as
Washington Mutual and IndyMac, died."
*
The GOP said the "Tax Cuts and Jobs Act" would reduce
deficits and supercharge the economy (and stocks and wages). The White
House says things are working as planned, but one year
on--the numbers mostly suggest otherwise.
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