Debt implosions usually begin on the fringes of the debt market, generally in a segment that has received a massive and unsupportable infusion of credit. Like the subprime housing market 2004-2007…or the subprime auto loan market the last few years. From Adem Tumerkan at palisade-research.com:
Last week, used car prices had their biggest drop since 2009 – directly after the financial market meltdown of 2008.
And right now, the auto market is showing signs of incredible worry.
Delinquent subprime auto-loans are higher than they were in the last recession.
Look for yourself. . .
What’s interesting – and worrisome – is that consumers are defaulting on subprime auto loans when the economy is supposably doing ‘very well’.
Like I wrote last week – there are cracks under the economy’s foundation. And it’s like a bucket of cold water in the face of the mainstream financial media that’s pushing the ‘growth’ story.
We must ask ourselves – “if things are going so well, why are subprime loan delinquencies at a 22-year high?”
I can’t help but feel a bit nostalgic. This was the same situation that led up to the 2008 housing crisis. . .
First, there was massive growth in mortgage-backed securities and mortgage debt. Then, the Federal Reserve – led by Alan Greenspan – began aggressively raising rates after years of low rates. Soon after, subprime loans started blowing up – which trickled into the prime loans. And eventually, everything was in chaos.
Using the often-ignored Austrian Business Cycle Theory (ABCT) – coined by the little-known but brilliant economist Ludwig Von Mises – I am blaming the Fed for all this.
Thanks to the Fed, a near decade of zero-interest rate policies (ZIRP) and three rounds of Quantitative Easing (which totaled over $3.8 trillion in printed money) – the consumers’ became hooked on cheap auto loans. . .
Their policies made the entire system fragile by getting consumers addicted to cheap debt through their easy money.
They then began tightening credit – crippling the borrowers.
To continue reading: Subprime Chaos: The Auto Bubble’s Bursting And It’s Worse Than 2008