Household Debt

“HOUSEHOLD DEBT AND CREDIT REPORT (Q1 2017)

Household Debt Reaches New Peak Driven by Gains in Mortgage, Auto, and Student Debt

The CMD’s latest Quarterly Report on Household Debt and Credit reveals that total household debt achieved a new peak in the first quarter of 2017, rising by $149 billion to $12.73 trillion—$50 billion above the previous peak reached in the third quarter of 2008. Balances climbed in several areas: mortgages, 1.7 percent; auto loans, 0.9 percent; and student loans, 2.6 percent. Credit card balances fell 1.9 percent this quarter.” -Federal Reserve Bank of New York

Record Debt

“…the world has been binging on debt like never before.

The International Monetary Fund reported last month that total nonfinancial-sector debt has ballooned to an all-time record of $152 trillion… while the global debt-to-GDP ratio has also soared to an all-time high of 225%, up from 200% just 14 years ago.

Worse, we’re seeing record debt at the government level, the corporate level, and the consumer level (via auto and student loans, in particular). The boom in corporate borrowing is especially concerning…

U.S. companies have already borrowed $1.4 trillion this year to date, according to data firm Dealogic. This is on pace to shatter last year’s previous all-time record of $1.5 trillion.

Unfortunately, most are using this money to refinance existing loans… buy back stock and pay dividends… and finance expensive (and often questionable) mergers and acquisitions. This will do little to help the economy. But it greatly increases leverage… and risk.” -Justin Brill

Automobile Craze

“For the first time ever, Americans collectively hold more auto loans than mortgages.  Who is borrowing all of this money? Anyone who can fog a mirror…. 40% of all car loans being made this year are to subprime borrowers.  These loans typically have interest rates as high as 20% annually.

What kind of a person borrows money at 20% annually for more than five years to pay for a used car?  Someone who has no incentive to repay the loan.  Calling that deal a “loan” is a misnomer.  It’s a lease with zero residual value.  The borrower will never have any equity – nothing is at stake for him.  He doesn’t even have to return the car… they’ll send a tow truck.” -Porter Stansberry