On Tuesday, it was
announced that over seventeen million new vehicles were sold in 2015, the
highest it’s ever been in United States history.
While the media claims that this record has been reached
because of drastic improvements to the US economy, they are once again failing
to account for the central factor: credit expansion.
When interest rates are
kept artificially low, individuals are misled into spending more than they
otherwise would. In hindsight, they discover that their judgment errors wreaked
havoc on their financial well-being………
We all know the end result
of the Great Recession — prices soared, millions of houses were foreclosed, and
unemployment surged. Demand for homes then plummeted, and home prices
ultimately dropped by 20 percent each month.
The auto bubble has yet to burst, but its negative effects are already
starting to gradually appear. For one, delinquencies on car loans have increased by nearly 120 percent, from just over 1
percent in 2010 to 2.62 percent in 2014. Since cars rapidly depreciate in value, this number is projected to
spike. By the time these six, seven, and eight-year no-money down loans are due
to be paid in full, many of these vehicles won’t be worth paying off anymore —
maintenance and loan costs will start exceeding the value of the cars.
According to the Center for Responsible Lending, one in every six title-loan borrowers is already
facing repossession fees. If
defaults sharply increase in the coming years as projected, the market will
become flooded with used cars, and their prices will, with near certainty, fall
to a significant degree.
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