Total Household Debt Climbs Boosted by Growth in Mortgages and Auto Loans
According to the latest Quarterly Report on Household Debt and Credit, total household debt rose by $313 billion (2.1 percent) to reach $14.96 trillion in the second quarter of 2021. Mortgage balances—the largest component of household debt—rose by $282 billion and auto loans increased by $33 billion. Credit card balances ticked up by $17 billion while student loan debt decreased by $14 billion. Mortgage originations, which include mortgage refinances, reached $1.2 trillion, surpassing the volumes seen in the preceding three quarters. Auto loan originations, which include both loans and leases, reached a record $202 billion.
up, up, up it goes!
Before we dig into these numbers any further, I want everyone to keep something in mind. The word 'delinquency' has lost all meaning here. With all the pauses put in place (it will become really clear with student loans in a moment), delinquencies aren't being counted accurately because of forbearance.
Rather than becoming a 'black eye' and affecting credit scores, they are having no bearing on credit scores whatsoever since what would normally get flagged on a credit report shows as 'current'. Tricks like this are being used to make the delinquency problem look better than it is...
Outstanding student loan debt stood at $1.57 trillion in the second quarter, a $14 billion drop from 2021Q1.
About 5.7% of aggregate student debt was 90+ days delinquent or in default in 2021Q2.
This chart is a little dated now, but gives an idea of the steady growth of student loans:
I bring this chart up to show that student loans haven't stopped being taken out, in fact, they appear to unfortunately be growing as steadily as ever, with the younger generations carrying more and more student debt in the 'total debt' being carried:
Look at the drop in delinquencies!
Let's look at it another way:
Are we to magically believe that everyone with student loans used their stimulus money to pay down their student loans?... The only reason the delinquency number is dropping is that people who would normally be counted are not being counted anymore because of the CARES act enrolling those accounts into forbearance. Remember from above, forbearance is 'conveniently' not counted when figuring delinquencies, problem solved...
Real quick, remember how we covered credit scores can't really be trusted right now since they aren't taking into account the full landscape because of forbearance? One would think the banks would tighten credit requirements for access to credit for homes and cars, right? Well...
Credit cards also showed continued declines in their delinquency transition rates, reflecting the impact of government stimulus programs and bank-offered forbearance options for troubled borrowers.
However, credit card balances grew in the second quarter, by $17 billion, after a $49 billion decline in the first quarter. Still, credit card balances remain $140 billion lower than they had been at the end of 2019. This is in large part to the aforementioned forbearances, stimulus, and enhanced unemployment benefits. What had people been doing with the stimulus when the government supported people directly? Paying down debt and attempting to save.
However, it appears the longer folks go without additional stimulus the more they are having to tap into credit, a slippery slope.
What does it all mean?
I do not think you can trust any of the delinquency numbers above. Doing so allows serious deficiencies with credit to run ignored and unchecked. One cannot help but wonder is this by design or on purpose?
How does this end? For mortgages in forbearance, it is pretty straightforward to me: the borrower will sell the home and pay off the mortgage, or the lender will refinance the mortgage and extended terms for the borrower.
For student loans and rents, how is the government not in the awkward position of being on the hook since they intervened, yet there is no tangible asset but the debt?
What happens when folks have been using that money saved to pay other bills (or worse increased their lifestyle) and cannot get current when these pauses eventually end? (who knows, maybe they will never end now?).
All of this in the backdrop of the Fed still plowing away with $120 billion in assets purchases each month:
$40 billion a month in mortgage-backed securities. This will continue to depress mortgage rates and only continues to add gasoline to the inflation fire.
$80 billion in Treasury securities a month (with policy rates near 0%): represses short-term and long-term interest rates in general, and inflates asset prices and consumer prices, which further DESTROYS the purchasing power of the dollar.
While the rest of the world's banks are acting, the Fed still claims this inflation is “transitory"...
TL:DR - The Dollar losing purchasing power + Inflation = Permanent Loss of purchasing power. Unless one of the many other catalysts triggers the MOASS, I believe inflation is the match that has been lit that will light the fuse of the rocket.