Repo Short-Term Credit Crisis Indeed Has ‘Macroeconomic Effects’

Dec. 23, 2019 (EIRNS)—At his Dec. 18 Federal Open Market Committee (FOMC) press conference, Federal Reserve Chair Jerome Powell insisted that the repo crisis “is a purely operational matter which has no macroeconomic consequences.” But one big “but” has already emerged.

OilPrice.com on Dec. 19 reported that the critical U.S. oil shale industry has “lost substantial access to capital” during the same four-month period in which the interbank lending market has cracked. The oil-shale sector, which has depended on short-term, even six-month and three-month loans, suffered a drop of −6% in 2019 (projected final result). Asset-backed securitization (of oil/gas revenue) is being used to try to get replacement for the lost capital funds.

A lot of mergers and bankruptcies are now on the agenda, with the mergers being buyouts of independent drillers by oil majors. But even this has turned down: Chevron just reported a $10 billion write-off of oilfield assets in Pennsylvania, West Virginia and Ohio (Marcellus Basin). Overall, production is up for 2019 only in the Permian Basin (this, despite 100 fewer rigs); it is down in the other basins in the Dakotas, Pennsylvania, and Eagle Ford in North Texas.

Consumer credit to U.S. households is also showing effects. Consumer credit has become increasingly a looting process, as it did in the three years before the 2008 financial crash; this process has been underway since approximately 2016.

Credit card average interest rates, and delinquency levels, have both increased significantly—the former from 14% to 17%, the latter from 2.7% to 3.3%. Auto loan average interest rates have gone from 5.2% to 6.8% over those three years, while (90 days-plus) delinquencies have risen from 3.5% to 4.8%. The average amount of an auto loan has risen to just under $32,000—nearly the average price of a car—and typical auto loan term is now 68 months, but 72 and 84 months are no longer rare.

Significantly, for consumer credit as a whole, the (90 days-plus) delinquency rate for loans made by the 100 largest U.S. banks is 2.5%, almost unchanged; but for all the other 5,000 banks, it is 6%, and has doubled since 2016.