The Rate-Puzzle Is Coming Together

Authored by Sven Henrich via,

The macro premise remains simple and I’ve written about this a lot: The US is drowning in debt and as long as rates are low it’s all fun and giggles, but there is a point where it cramps on growth and the simple question is when and where. In recent weeks we have had a nasty correction coinciding with technical overbought readings and both bonds and stocks testing 30 year old trend lines.

In the meantime we continue to get data that keeps sending the same message: It’s a debt bonanza that keeps expanding and is unsustainable. Janet Yellen a few months ago said the debt to GDP ratio keeps her awake at night. Yesterday the Director of National Intelligence came out and described the national debt on an unsustainable path and a national security threat. This is literally where we are as a nation.

What’s Congress’s and the White House’s response? Spend more and blow up the deficit into the trillion+ range heading toward 2-3 trillion.

What is there to say but stand in awe at the utter hubris that is being wrought.

Last night the Fed came out with the latest household debt figures and it’s equally as damning, record debt and ever more required to keep consumer spending afloat:

The non-mortgage piece is particularly disturbing:

A few nuggets in the Fed’s household debt data.
Total non mortgage debt was $2.7 trillion at the peak in 2008.
Now it’s over $3.8 trillion, a 41% increase.
The big drivers: Auto loans and student loans.
Also: Credit card balances back at their 2008 peak.

— Sven Henrich (@NorthmanTrader) February 13, 2018

As I added on twitter last night:

“Non-housing balances, which have been increasing steadily for nearly six years overall, saw a $58 billion increase in the fourth quarter. Auto loans grew by $8 billion and credit card balances increased by $26 billion, while student loans saw a $21 billion increase”.

“As of December 31, 4.7 percent of outstanding debt was in some stage of delinquency. Of the $619 billion of debt that is delinquent, $406 billion is seriously delinquent (at least 90 days late or “severely derogatory”).

“The flow into 90+ days delinquency for credit card balances has been increasing notably from the last year and the flow into 90+ days delinquency for auto loan balances has been slowly increasing since 2012”.

So they want to keep raising rates. …read more



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