2018 Year In Review, Part 3

Dave Collum’s Annual Review

“How do you make poor people feel wealthy when wages are stagnant? You give them cheap loans.”~Vincent Daniel in The Big Short

According to a Federal Reserve study, Americans have $1 trillion of credit-card debt, $1.5 trillion of student debt (Figure 34), $1.5 trillion of auto loans, and $13.5 trillion in mortgage debt.^{ref 307} So many zeroes: What the hell does that even mean? We can manage the mind warp by bringing it down to the family level. The average household has $140,000 in total debt.^{ref 308} This number does not included unfunded liabilities at the municipal, state, and federal levels. The student debt is disturbing in that 40% of it is held by senior citizens and who are defaulting with troubling frequency (37%),^{ref 309} and the boomers now owe more than the millennials: “Thanks, Mom and Dad. I’ll swing by on my way to Fort Lauderdale this spring.” There are 101 individuals with over $1 million of student debt, and one dentist owes >$2 million.^{ref 310} The $100,000 student debt club has 2.5 million members. Owed mortgage debt is almost 5× the yearly salaries of the owners.^{ref 311} Credit card debt has climbed back to its 2008 peak,^{ref 312} but the average interest rose 3% to a lofty average 15.5%. Consumers are paying $100 billion a year in interest payments with their disposable income. One could argue that if you have credit card debt, you have no disposable income.

Figure 34. Student debt or monetary policy? Consumer debt is growing at 2× the rate of salaries (Figure 35) while 100 million Americans have no job to make such a comparison. The auto debt market continues to show stress fractures. Approximately 30% of trade-ins are in functional default (worth less than the loan balance.)^{ref 313} Trading in a beater for an improved newer model is a bad decision. An estimated $280 billion of subprime auto loans are defaulting, stressing the smaller subprime lenders.^{ref 314} A heavily cited stat this year was that 40% of Americans do not have enough money to cover an unexpected $400 expense without borrowing the money or selling something they own, and 60% can’t cover a $1,000 tab.^{ref 315} This is not a moral judgment, just the facts.