Defaulted Borrowers Don’t Understand How Debt Works

Over the past two years, a trend has emerged in US consumer debt: people are borrowing more, but defaults are rising. As I reported at the end of November, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data, total household debt increased by $116 billion to reach $12.96 trillion in the third quarter of 2017. Most borrows are honoring their debts, but the percentage of those defaulting is rising. [dalio] The outstanding subprime auto debt now stands at about $300 billion (24% of the total outstanding auto loan balance), and around 10% of borrowers with…