|Loaning More On Autos A Growing Problem|
The latest report from Edmunds reports that 32% of trade-ins having an average negative equity balance of $4,832. This means many of these buyers are simply rolling that negative equity into a brand new 7-year loan at a 2% interest rate. The amount of negative equity car buyers are rolling has also reached a record high confirming these shoppers are not deterred to absorb a significant financial hit in order to get into a newer vehicle. Another concerning part of this report is that the percentage of used cars being traded in with negative equity values also continues to spike and currently stands at an all-time high 25% with the average balance of the negative equity also, continuing to rise to $3,635 for Q3 2016, up from roughly $2,750 in Q3 2011.
|Growing Debt Looms As A Global Problem|
While I have focused on student and auto loans I'm aware this subprime buying binge has broadly spread to a wide range of consumers. Is was best said by someone who wrote: "Only a University of Phoenix, African Studies major is more of a subprime risk than the millions of ecstatic Escalade drivers cruising around our urban ghetto paradises." The Federal Reserve has been pumping in trillions of dollars of liquidity into the economy and much of it has resulted in pulling future consumption forward. These policies will soon become a headwind to both future sales and growth. This creates future problems and is more proof of just what an infusion of money from the Fed can produce and how it distorts economic reality. The basis of such an economy is unsustainable and because it has been able to exist for so long does not mean it can continue.
It is important to remember not all debt is created equal. A mirage is a naturally occurring optical phenomenon in which light rays are bent to produce a displaced image of distant objects. Joining the idea of a mirage and contagion with the reality of collapsing debt forms an interesting subject. It is important to remember all debts and obligations do not come due at the same time. Also, it must be noted when a bill is not paid or defaults it often starts a long and drawn out legal battle, this collection process that may extend years without harsh consequences. This, my friends, is the reality of modern life in America and much of the world, debt will always be kicked down the road and this is a good reason not to be the lender when reality hits.