How subprime loans keep the bubble going: Subprime auto loans continue to grow as credit worthy customers drop out of the market.

Subprime debt is back in a big way

Over the last seven years courtesy of the Fed’s low rate policies, auto and student debt has surged in dramatic fashion.  While the shrinking middle class is unable to purchase homes with inflated values, many are still chasing the dream by going into debt for cars and college. 

The debt growth in these markets is nothing short of fantastic:

What is scarier about this sudden growth is that much of the debt is being made to people that are having a difficult time paying it back.  Take a look at subprime auto debt:

The results of prolonged artificially low rates is that the market is now fully addicted to this environment.  The Fed is backed into a corner and they really have very little ammo left.  Speculative lending is already dominating the market.  You can see the subprime booms very clearly:

I would argue that many college loans are subprime especially if they are made to students going to for-profit paper mills.  At least with subprime auto debt, you are getting a tangible item in a car.  With a for-profit, you are getting nothing, not even an education.  The only education you are getting is the shady under belly of subprime student loans for a subprime degree. 

The economy is clearly slowing down.  Recessions happen.  And once again we have saddled a large enough group of Americans with debt where the pain will be deeply felt when the correction hits again.

DYI Comment:  Keep your powder dry America is being set up for another round of debt blow off that will hit stocks and junk bonds hard.  Better values lie ahead so don't lose your head while everyone else is losing theirs.  Patience will be rewarded for this has been a long and tortured, twisted, manipulated economy.  Mr. Market will have his day as he will reset stock and bond prices to more accurately display valuation.  A 45% to 60% decline cannot be ruled out; it is a very real possibility.

DYI