The First Pillar to Fall in the Coming Debt Crisis

by Justin Splitter, Casey Research

Americans are falling behind on their car loans at the fastest pace since the global financial crisis.

You can see what I mean below. This chart shows the percentage of auto loans that are “seriously delinquent.” These are loans that haven’t been paid in 90 days or longer.

This key ratio has been surging since late 2014. It’s now at the highest level since the 2008–2009 financial crisis.

• This is a big problem…

You see, more than one out of every three Americans has a car loan right now. Not only that, the average U.S. household owes nearly $29,000 in auto debt.

Americans have borrowed so much money that the auto loan industry is now a $1.2 trillion market. That’s 58% bigger than it was in 2009.

For years, investors ignored this explosion in auto loan debt. But they won’t be able to for much longer.

That’s because the auto industry is cracking before our eyes. If this continues, carmakers and auto lenders will be in serious trouble.

But you can’t ignore this just because you don’t own any car stocks. That’s because Americans don’t just have too much auto debt…

• They have too much debt, period…

And the Federal Reserve is a big reason for that.

Since 2009, the Fed has held its key interest rate near zero.

This has made it cheaper than ever to borrow money. So, naturally, Americans loaded up on debt.

During the first quarter, U.S. household borrowings hit $12.73 trillion. That’s a record high, and 5% more debt than Americans had at the peak of the last housing bubble.

This wouldn’t be such a problem if the U.S. economy were doing well. But it’s not.

The U.S. economy is recovering at the slowest pace since World War II. Not only that, the average U.S. worker is making just 16% more than they were in 2009.

• The average American now has more debt than they’ll ever be able to pay off…

You can see what I mean below.

This chart compares the level of household debt with disposable income.

A high ratio means that Americans have a lot of debt relative to income. You can see that this key ratio has been soaring since 2009. It’s now at the highest level ever.

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