A few years ago, we developed what we called Bad Guy Theory (BGT).
The idea was that there are good guys and bad guys. The bad guys change, of course. Germany was bad in 1940. Now it’s good. Ditto with Japan. Today, Russia and China are bad.
The bad guys come and go. But the good guy — the US, the ‘one, indispensable nation’ — never changes.
And since good guys do only good things, bad things miraculously become good things when they do them, such as invading Iraq. Or blowing up other peoples’ pipelines. Or assassinating their leaders. Without noticing, the good guy becomes a bad guy.
The panic pivot
We’ll come back to that as we puzzle out how China became a bad guy…what the US is becoming…and why you should brace yourself as the US rehearses the unhappy comeuppance of empires throughout the ages. But today, let us check in on how the financial reckoning is going.
Our hypothesis: the inflation Indians are off the reservation. The Fed will continue to raise rates, trying to get them under control, until the economy reaches a crisis point. Then, it will panic and ‘pivot’ towards more money-printing.
Here’s one little item from Yahoo! Finance: ‘Car Debt Is Piling Up as More Americans Owe Thousands More Than Vehicles Are Worth’:
‘The build-up in negative equity — or the amount that debt exceeds a vehicle’s value — is rattling consumers and raising alarms within the industry. Though it’s not unusual for drivers to carry negative equity, some dealers say more people are arriving at their lots up to $10,000 underwater, or “upside down,” on their trade-ins. They’re buying at still-sky-high prices and rolling debt from one car to another and even onto a third. Loans are commonly stretching to seven years.
‘“As trade-in values begin to cool, each month more and more consumers will find themselves falling from positive to negative equity,” said Ivan Drury, director of insights at auto-market researcher Edmunds. “Unless American car shoppers break their habit of buying again too soon, we’ll see the negative equity tide continue to rise.”’
Disruptors disrupted
As cars decline in value, so does the car-selling industry. Carvana — the ‘disruptor’ that was once worth US$31 billion has lost 96% of its value. It’s lost money every year since it was created in 2014. A US$100 million loss one year, US$150 million the next. But last year, it lost US$1.5 billion, for a total loss of US$2.107 billion during its career.
Meanwhile, another ‘disruptor’, WeWork, has wiped out US$15.5 billion of capital since it began in 2016.
These are not just the ‘paper’ losses of stock market speculators. This is real wealth — time and resources — squandered on bad ideas, a total of more than US$17 billion by these two companies alone. That’s about what the total national debt was during the Dust Bowl drought of 1931 (not adjusted for inflation). Back then, the debt-to-GDP ratio was a mere 22%.
While speculators lose money, so does the middle class; their houses are going down as well as its cars.
Mortgage applications are at their lowest level since 1995, while mortgage payments rose 26% last year…and the average sale price fell 16% since last July. Home sales fell for the last 12 months straight…and are now 37% below their level a year ago…the biggest decline on record.
The real massacre
And here’s Breitbart, adding it up:
‘Homeowners in the United States have lost $2.3 trillion in total value since its peak in June, according to an analysis from Redfin.
‘“The total value of U.S. homes was $45.3 trillion at the end of 2022, down 4.9% ($2.3 trillion) from a record high of $47.7 trillion in June,” an analysis of the Redfin Housing Value Index claimed. The research indicated that the drop in total valuation across the United States is the “largest” drop in total percentage terms from June to December since 2008.’
What can desperate consumers do? Borrow! Credit card balances just took their biggest jump since the 2001 recession.
Total debt for millennials is up 27% since 2019, the most for any age group. Millennials also had the highest delinquency rate.
In other words, so far, so good. Both the rich (investors) and the not-so-rich (the middle class) are getting scalped.
Sooner or later, we think, the real massacre will begin…
…and the Fed cavalry will, alas, come to the rescue…like Custer to the Little Big Horn.
Stay tuned.
Regards,
 |
Bill Bonner,
For The Daily Reckoning Australia
