Subprime Chaos: The Auto Bubble's Bursting And The Data Is Worse Than 2008
Last week, used car prices had their biggest drop since 2009 – directly after the financial market meltdown of 2008.
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 reportedly 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.
Think of it this way – imagine you’re addicted to alcohol. And your bartender keeps giving you cheap drinks each night for months. Eventually, from drinking way more than you should’ve been able to afford, you now have a very high tolerance.
But suddenly – the bartender becomes strict and starts giving you less booze. He tells you, “sorry but no more free alcohol for you.” Problem is, you wouldn’t have drank so much if you had to pay full price for it.