Kredit Krisis Krushes Kiddies

The click bait alarmists on credit quality are at it again! "More Americans late on car loans! A record number! Seven Million!" That's one million more than there were in 2010, according to the New York Fed.

Shocking! What shall we do? Time for some stern lectures about our profligate spending habits. Because what this country needs is a good talking to.

Know what else hit a record since 2010? Several times over? Auto sales.

How many times must it be explained that we don't use nominal figures to prove a point, whether it's the debt or deficit, foreclosures, or defaults. Since the recovery began, we've gone from selling 10 million cars in 2010, skyrocketing to a peak of 18 million cars a year in late 2015, and we've hit that ceiling a couple of times since. So if you want to look at this in the correct way, as a percentage basis, we're in pretty good shape. Six million defaults while less than 10 million cars a year are being sold isn't the same as 7 million defaults on 18 million cars being sold. Oh, and that spike in sales in 2009? That was from the "Cash for Clunkers" program that was meant to get workers back into the factories. It seems to have actually worked.

The numerical rise in defaults is being described as some sort of canary in the coal mine for the economy. The recovery is, after all, over 100 months old, and the cycle has to turn sometime. But the real reason is mostly stretched underwriting criteria. In the real world of lending, when a market has exhausted itself of prime customers, lenders will fill their pipelines with clients of less than stellar credit to keep the momentum going. It's just the way business is done.

In the meantime, Americans continue to be frugal with credit with exception of student loans, which, it could be argued, is keeping a lid on the uses of other credit venues. Here are credit card defaults, which have seen a mild uptick, but no where near the "hair on fire" category.