U.S. Nonfinancial debt includes four broad categories: a) household debt, b) business debt, c) federal debt and d) state and local government debt.
Household debt is running hot…
Hoisington Quarterly Review and Outlook, First Quarter 2016:
Households. Household debt, excluding off balance sheet liabilities, was 78.3% of GDP at year-end 2015, more than 20 percentage points above the average since 1952. However, this ratio has declined each year since the 2008-09 recession.
Credit standards were lowered considerably for households in 2015 making it easier to obtain funds. Delinquencies in household debt moved higher even as financial institutions continued to offer aggressive terms to consumers, implying falling credit standards. Furthermore, the New York Fed said subprime auto loans reached the greatest percentage of total auto loans in ten years. Moreover, they indicated that the delinquency rate rose significantly. Fitch Ratings reported that the 60+ day delinquencies for subprime auto asset-backed securities jumped to over 5%, the highest level since 1996. Prime and subprime auto delinquencies are likely to move even higher. According to the Fed, 34% of auto sales last year were funded by 72-month loans. With used car prices falling on an annual basis, J.D. Power indicates that the negative equity on auto loans will hit a ten-year high of 31.4% this year.
Despite the lowering of credit standards, the ratio of household debt-to-GDP did decline in 2015, primarily due to mortgage repayments. However, the apparent decline in household debt is somewhat misleading because it excludes leases.
The Fed website acknowledges the deficiency of excluding leases by pointing out that personal consumption expenditures (PCE), compiled by the Bureau of Economic Analysis (BEA), do include leases. With leases included, the change in consumer obligations can be inferred by using the personal saving rate (PSR), which is household disposable income minus total spending (PCE). If the PSR rises (i.e. spending is growing more slowly than income) debt is repaid or not incurred. Indeed from 2008 to 2012 the PSR rose from 4.9% to 7.6%. However, since 2012, the saving rate has declined to 5.0% (at year-end 2015), implying a significant increase in debt obligations. The consumer did, in fact, increase borrowing last year by $342 billion even though the household debt as a percent of GDP declined. The household debt-to-GDP ratio dropped from 82.0% in 2012 to 78.3% in 2015; however, excluding mortgages consumers have actually become more leveraged over the past three years with non-mortgage debt rising from 17.9% to 19.5% of GDP.
The RealthTrac Overview for Feb 2016 reports that there are “884,937 properties in U.S. that are in some stage of foreclosure (default, auction or bank owned).”
Nearly 900,000 American families are ‘on trac’ to lose their homes.
The problem: Eight years of Federal Reserve and U.S. Treasury central-planning endeavors have done little, if anything, to improve the debt-fogged climate for American families.
It is time to decentralize, and it is time to ‘de-fog’ Household debt, before we head into another crushing default wave.
The Leviticus 25 Plan 2017 – $75,000 per U.S. citizen The Leviticus 25 Plan 2017 (1431)