Mad Genius Economics Blog | The Macro Market Wrap Up With The Mad Genius, Vol. 63 | Talkmarkets
Mad Genius Economics

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The Macro Market Wrap Up With The Mad Genius, Vol. 63

Date: Sunday, March 24, 2019 10:56 AM EST

It’s been about 2 weeks since my last posting, so let’s get right to it. In the past I’ve said many, many times that rising interest rates would lead to higher default rates on all types of loans, both consumer/household loans as well as commercial loans to businesses and commercial real estate.

About 3-4 weeks ago I spoke about the alarming amounts of student debt as well as the default rates. Today instead, I want to look at two types of loans at the consumer or household level.  One is auto loans in default.  There’s actually a lot of talk as of late regarding the over 7 million auto loans that are now at least 90 days late, which is 3 monthly payments.  That’s a lot of loans, and it’s particularly alarming because people really need their cars to go to work, run ordinary errands like grocery shopping, and basically live their lives as they are accustomed to do. So before the house, it’s probably the last loan that people default on when they’re getting desperate. And the default rate hasn’t been this high since the depths of the great recession.  If the economy was as good as the government claims, we shouldn’t see this many defaults like we did at the depths of the last recession.

Two weeks ago Fed chairman Jerome Powell said in a 60 Minutes interview that the number of auto loan defaults is so historically high because the economy has been so good that people have bought a historically high number of cars. Au contraire Mr Chairman, the auto industry is reporting sinking sales, some by as much as 25% or more during 4Q18, as I have spoken about recently. And auto sales aren’t nearly what they were 15 years ago, down by 40%. Car sales aren’t historically high by any means, whereas defaults in a so-called good economy are.

According to carsalesbase.com, one of the worst is Nissan which sold 629,621 cars fleet-wide for the last 6 months, and the same period one year prior they sold 714,722 cars.  That’s 12% less. Honda results were also down with 671,838 in the last 6 months and 699,348 one year prior, for a 4% drop. Toyota was 987,310 for the last 6 months and 1,030,054 one year prior for a drop of 4.1%.  Ford was 1,107,723 and 1,175,880, for a fall of 5.8% It’s more likely that salaries are just not keeping pace with living expenses as those expenses rise with rate hikes.

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