Is a Mini Meltdown on Its Way?

March 2, 2023

I don’t usually like to toot my own horn, but you can’t say I didn’t warn you…

What dire warning is about to come true? I’ll lay it out in a second, but first…

On Valentines day, Cecilia Rouse, the chairperson of the president’s Council of Economic Advisors wrote a fawning Valentines Day op-ed to her boss Joe Biden.

In it, she went on about the president’s glorious economy. She boasted about the booming jobs market that added 517,000 jobs in January. She crowed that over 12 million jobs had been created since the president took office.

She extolled the wealth of American families still having “$1 trillion” in excess savings from the pandemic.

And despite some still-too-high inflation (which is quickly coming down), everyone was doing great thanks to her boss…

In March 2020, economic activity suddenly came to a halt as people around the globe sheltered to stay safe from a novel virus. … …the fact that we are almost back is a credit to the economic vision of this administration.

Yes, those at the helm of the economy want you to be assured that everything is great!

Of Course It’s Not

I’ve explained that most of these claims are wild exaggerations at best — if not outright lies misrepresentations.

The reality of her “bounce back” is less spectacular for one reason…

Consumers — the driving force behind our economic growth — who’ve seen their wages shrink behind inflation for the past 22 months are now buried in debt, with their savings drained.

It shouldn’t be surprising we’re here. 

During that sudden “halt in economic activity”, the government started handing out stimulus checks like party favors. Suddenly everyone was rich! But free money makes people do stupid things. 

And last August I pointed out one of the stupid things people were doing. And how it was leading to yet another bubble that was getting ready to pop… the auto loan market.

Back in early 2022, the Fed reported that thanks to a drop in auto loan originations for lower credit score applicants in 2020 auto loan delinquency rates were plummeting…

Source: The Federal Reserve Board

Unfortunately, as everyone got “stimulus-rich” that fiscal sensibility fell by the wayside as originations across all credit scores pretty much exploded.

Source: The Federal Reserve Board

Well now those auto loan chickens have come home to roost… Today delinquencies in car payments are soaring.

The Wall Street Journal pointed out…

Some 9.3% of auto loans extended to people with low credit scores were 30 or more days behind on payments at the end of last year, the highest share since 2010, according to an analysis by Moody’s Analytics.

According to auto industry monitor Cox Automotive:

Auto loan performance in December saw further deterioration. Loans delinquent by more than 60 days increased by 5.3% and were up 26.7% from a year ago.

Of all loans, 1.84% were severely delinquent, which was an increase from 1.74% in November and the highest rate since February 2009. 

The cracks are starting to appear.

Consumers’ Pain is Real

As I mentioned in my earlier post, don’t look for the fallout from this to be anything close to 2008. But a chain of auto loan defaults will definitely have an impact on consumers.

One that will only make things worse. 

The Journal told one unfortunate story, I’m sure, of many…

Chris Woodward, of Cedar Falls, Iowa, was laid off from his software job in August, his second job loss in eight months. Soon after, he fell behind on the loan tied to his 2011 Ford Flex. While looking for a new job, he also fell behind on rent and ran up his credit-card bill, he said.

“It’s weird to go from having a good salary and not stressing, to, ‘How am I going to buy diapers?’” said Mr. Woodward.

But don’t worry… Cecilia Rouse says everything is great!

Make the trend your friend,

Bob Byrne
Editor, Streetlight Daily