Drowning In Debt: Delinquencies Are Surging And It’s Only Getting Worse

Lately, there’s been concerning news about Americans and their ability to service their debts.

Two weeks ago I wrote about the alarming rise in subprime auto loan delinquencies – a 22 year high.

What’s puzzling is that the last time delinquencies were this high – the U.S. economy was in a deep recession.

That’s why I asked myself: “I’m sure if individuals are having trouble paying their car loans – then they must be having trouble paying all other loans.”

And that’s what we’re seeing. . .

After years of steady relative health, credit-card users are now having a harder time making payments on their balances.

Just look at the sharp rise in delinquencies since 2017...

(Click on image to enlarge)

There is a strong correlation – both historically and logically – between interest rates and credit card debt delinquencies. 

As rates rise, outstanding debt burdens become difficult to service.

So, until the Fed reverses their tightening – things will only worsen for credit-card users from here...

That’s why a serious question needs to be asked: with auto loans, student loans, and credit card delinquencies all on the rise – and we’re not even in a recession – what can we expect from here?

The only Keynesian economists I find worthwhile is Hyman Minsky. I’ve written about him before, especially his work on volatility – formerly known as the Financial Instability Hypotheses (FIH).

Minsky wrote that in the economy, there are three debt-to-income stages: hedged, speculative, and ponzi...

1. Hedged – lowest risk – is when an individual makes enough cash-flow to service both debt interest and principle. Basically, they can pay off all their liabilities if needed to. From an investors perspective, hedged is just like finding ‘Net-Net’ stocks – the Ben Graham value approach of finding stocks with cash/current assets well above the company’s total liabilities – offering a huge margin of safety.

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Disclosure: With Regards to the VIX and GLD - these positions I've placed are in their  more

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