Daily Archives: January 25, 2018

Debt Bubbles

Bubbles don’t end well, remember the

Car Debt Bubble
Debt Bubbles

real estate bubble that burst in 2007-2008?

Debt Bubbles

A (debt) bubble is an economic cycle characterized by rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. 

Uh, yeah, when anyone who could fog a mirror got a mortgage, people were suckered into buying homes they could not afford by mortgage brokers who walked away from the closing with their commission, whether the mortgage was paid or not.

So, any bubbles out there now?  (Besides the student loan/college tuition bubble, see my other blog www.dischargestudentloan.com)

Auto Debt Bubble?

From my favorite blog (Instapundit) that I don’t write:

U.S. auto sales have hovered well north of replacement rates for several years now on the back of an improving labor environment and more importantly an extremely accommodating financing market characterized by $0 down, 0% interest loans to subprime borrowers, with perpetually longer maturities to help manage monthly payments…because if your monthly payment is $500 you can afford it, right?
But, according to data presented in Experian’s Q3 2017 auto financing market update slides, the auto market may finally be on the brink of running right off the other side of Ford’s proverbial “Plateau.”
The situation doesn’t appear to be as bad as it was in 2007, but the coming correction would be gentler if Detroit could stay away from the channel-stuffing and the subprime borrowers.

Credit Card Bubble?

Last time around, we were told not to worry about consumer debt, because of all the wealth we had in our homes.  Until home values declined for the first time until 1937.  Ooops.

Besides student loan debt, and auto debt, credit card debt is rising right along with them.

Tyler Durden writes on the Zero Hedge site:

Earlier in 2017, using the latest – and soon to be revised – Fed data, newspapers and financial media reported that US consumer credit card debt had risen above $1 trillion for the first time since the financial crisis.

Ironically, just a few months later the Fed revised its data series sharply lower, sending the revolving credit total back under this “psychological number.” At least until recently, when the latest consumer credit update from the Fed disclosed that in October, consumer credit rose by $20.5 billion, more than the $17.5 billion expected, of which $12.2 billion was non-revolving, auto and student loans, and $8.3 billion was credit card debt. This was the biggest monthly increase in credit card debt since last November’s (revised) $12.3 billion. 

Total consumer credit rose by 6.5% Y/Y, rising to $3.802 trillion as of Oct 31. That number is more than double the rate of increase of US GDP or wage growth, making it clear just where America’s “purchasing power” comes from.

Finally, this was also the single biggest monthly increase in consumer credit since November 2016.

What could go wrong?

Are you inflating your own bubble?

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