Auto Loan Notes BLOWING UP In RED ALERT For US Economy

[00:00:00] Speaker 1: Things not looking good out there in the economy, I'm going to put up E2 here, delinquent auto loans are absolutely surging. And the reason that this is such, and this is this car buzz, but others are reporting this too, $1.7 trillion market might be on the verge of collapse, they say. The reason that this is such a glaring red light to the economy is that, think about it, what is one of the last things that you're going to stop paying? It's your car note. In fact, you're often, you stop paying your rent often before you stop paying your car note. Because rent, like you can fight your landlord and you can like, maybe you can get some kind of like agreement or get on a payment plan or something. And maybe you can get another apartment if you end up, you do get evicted six months later after you're fighting with the landlord. Your car note though, if you lose your [00:00:59] Speaker 2: car, you lose your job. And you can live out of your car if you're a real dire straits, or you can drive home to live with your parents. Like their car is the lifeline. And so it's not just intuitive, but [00:01:09] Speaker 1: economists will tell you that statistically the car note is the thing that people pay before they pay everything else. Um, because, and also because it's easier for the capitalist to snatch your car than it is to snatch your apartment. Yeah. Like, you know, they can take you to court and change the locks, but you can, there's a lot more protections. You can go to landlord tenant court, you can start making payments. Um, and certainly when it comes to student loans or credit card debt or other things, um, you're, you know, the, the consequences are less immediate. Yep. If you get your car repossessed, it's gone. Like you just go out with your keys. You're looking like, wait, I'm, I'm pretty sure I parked it here. I have nowhere to go. And now it's gone. And so now you call it, you call in and you're like, uh, I'm going to be late today because I don't have a car. And you do that a couple of times, you're fired. And now you're really sure. So that's, that's why when they start seeing auto loan delinquencies taking up significantly, it's a sign that everything else is much worse. Like this is the last thing. This is the, tends to be the last thing to go. Um, and meanwhile, of course, we've been chopping up all these auto loans and, you know, putting them in the financial, uh, blender and then serving them as these like AAA smoothies to investors, throwing them into pension funds and everything else saying this, okay, yes, every one of these loans by itself is bad, but we mixed them all together and now they're good. You may remember that from such films as, um, everything about the [00:02:49] Speaker 2: great financial crisis. You, you may speaking of which, by the way, why don't we even skip to E5 here? The free press had a genuinely good article by Bethany McLean, uh, who wrote, like literally wrote the big, or that was about the pandemic, but didn't she, she wrote one of the big books, um, about the financial crisis and is saying basically that. Oh, she wrote the Enron book, right? Oh, the Enron book. I'm sorry. That's what it was. Enron. Um, and is asking our data centers, the next big short, or are they the next Enron? And when you look at the circular financing, which we've covered a lot here, you have Nvidia investing in the AI companies who are then dependent on Nvidia and all of that. It's an open question. Uh, one of the things she writes is that like, when you talk to experts, um, about the, like, this is a great line that she says, this might lead to the most profound difference between the AI boom and the sagas of Enron and the global financial crisis. In the latter two, the smartest people I knew were skeptics. It was the dumb money that kept the party going this time. I know very smart people on both sides of the argument last week, notwithstanding, it's going to be a while before we know who's right. Very smart people on both sides of the argument. Now you don't have to even be a very smart person to say, how is open AI paying for all these data centers? If they're not profiting, if they're not turning a profit in any given year, but they're spending all this money on the data centers. Uh, yeah, it's a huge problem. And actually let's go ahead and put this next element up on the street, E2. I'm sorry, not ET. Let's put E3 up on the screen. This is from the National Association of Realtors released Tuesday, a report that showed home sales at a record low. They started doing this in 2001, record low. The pending home sales index tumbled 7.3% to 66 last month. Record low since 2001, [00:04:42] Speaker 1: monthly home sales. And yeah, and these, these things are related because- Yes. The AI, um, build out is relying on trillions at this point of dollars of capital pouring in. Much of it is pouring in by way of debt. What that debt is doing is crowding out all the other debt. It's, it's a, it's a, it's a real vivid example of this idea of crowding out that they often talk about when it relates to government borrowing, but you're actually seeing it happen in a, in a real and visceral way. So in other words, if you are somebody who wants to buy bonds, because there's so many of these, uh, these data, data center bonds, what that means is that if you are a home buyer, or if you're like just Pepsi Cola or something, you now have to pay a much higher interest rate to attract investors because there's so much debt out there. Right. Investors can just go and get debt from open AI or Claude or whatever. Right. And, and so what that's doing is it's just driving up interest rates and driving up mortgage rates as well. So not only is your electric bill up because these data centers, but your mortgages, your mortgage rates are way up too. And that's the thing that is seizing the, the housing market up. And this, if we put the [00:06:10] Speaker 2: access tear sheet up next, this is, looks like it's only going to get worse because they report the number of housing units started by builders fell 5.2% last month, according to the Census Bureau to 1.22 million. That's down 7.4% year over year and near post pandemic lows. So, uh, housing units starting is falling. Sales are at a record low since 2001, according to the National Association of Realtors. [00:06:34] Speaker 1: So that's, that's, that's, that's foreboding. That's not good. Um, and, and just to give Bethany McLean her flowers. Yes. She wrote a very prescient 2001 piece on Enron. She was then coauthor of the book, um, the smartest guys in the room. It's like the seminal book on Enron. And then she wrote all the devils are here, which is a seminal book on the 2008 financial crisis. So she has the credibility to weigh in on the kind of AI financial engineering and to say, Oh, like you, and you were circulating a, a, an amazing chart recently that showed that, uh, the amount of investment into the AI bubble, uh, relative to GDP is greater substantially than our investment in, in the internet investment in radio, in railroads and even canals before that. I knew you were going to mention the canals. [00:07:28] Speaker 2: You immediately latched onto the canals because you were like, that was a massive capital investment. [00:07:32] Speaker 1: That was our first bubble. Yeah. There was the canal bubble. It's not even close. [00:07:36] Speaker 2: Right. Not even close. Right. So. And we were digging up half the country. Shaky. And they had, that's the, like, and this is to the McLean article. She's saying they're very smart people, very, very fine people, uh, very smart people on both sides of this argument about whether this is a bubble. And previously there was nobody except for maybe one or two people like in the wilderness saying that we might've been in a bubble. So that in and of itself is kind of an argument we're in a bubble. It's like we never detected any of it before. So, uh, add another [00:08:06] Speaker 1: notch to the bubble column. Yep. Things are looking bleak. All right. Let's, uh, let's bring in Noga. [00:08:11] Speaker 3: Hey, if you liked that video, hit the like button or leave a comment below. It really helps get the [00:08:15] Speaker 2: show to more people. And if you'd like to get the full show ad free and in your inbox every morning, you can sign up at breakingpoints.com. That's right. Get the full show, [00:08:24] Speaker 3: help support the future of independent media at breakingpoints.com.