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Costly car loans may stall the COVID-19 economic recovery

Costly car loans may stall the COVID-19 economic recovery

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By Joseph Kane

As the COVID-19 recession deepens, many households are struggling to keep up with basic costs of living. Housing, food, and health care are just a few costs pressuring those who may have lost jobs, fallen ill, or were already carrying a lot of debt. Lower-income, indebted households are especially vulnerable.

Amid shelter-at-home orders and social distancing, one of the least obvious but most significant costs vulnerable Americans face is transportation. Even though we’re not driving, buying gas, or taking transit as much—all of which usually make transportation the second-highest average household expenditure annually—many of us are still dealing with the costs of owning a car. Specifically, individuals carrying costly car loans are financially vulnerable and exposed to losing the physical access to opportunity that comes with car ownership.

Marooned in far-flung suburbs, Americans often have no choice but to drive everywhere. And we pay for it, from car repairs to insurance to loans. While the country isn’t rushing to buy new cars right now and insurance companies are offering refunds to compensate for our lower mileage, existing car loans are still a big burden for millions of lower-income Americans who took on more debt in the last few years and now face greater health and job risks during the current recession. The downstream impacts—stretched budgets, missed payments, and less consumption overall—could create a drag on a wider economic recovery.

Before the coronavirus hit this March, Americans had almost 116 million car loan accounts—totaling $1.3 trillion, or about $11,476 each, according to New York Federal Reserve Bank data. This ranks them among the biggest categories of debt nationally; there are now more car loan accounts than mortgages (81 million).

Car loans are also one of the fastest-growing categories of debt nationally. The total outstanding value of car loans is up almost $395 billion in inflation-adjusted terms (or 55%) since 2009—higher than every debt category except student loans (up $544 billion, or 75%).

Fig1

While higher-income individuals do not rely as much on car loans and have benefited from not needing to travel as much during the current pandemic, lower-income individuals have not been as fortunate. Several recent reports have examined increased borrowing and predatory lending to lower-income individuals over the past decade, including longer loan terms and higher-cost subprime loans (those made to individuals with lower credit scores). Now, lower-income individuals are not only more likely to be deemed “essential” and commute to work, but they are also saddled with car loans lasting up to 84 months and being forced to seek more payment deferrals.

Many of these lower-income individuals were already in a pinch before COVID-19. From 2009 to 2019, subprime borrowers (those with credit scores below 620) took on more car loans. The volume of car loan originations for this group jumped from $11 billion to almost $26 billion in real terms—a 127% gain, faster than all other borrowers. In other words, borrowing kept growing despite the economic risks, and while some of these loans are now paid off, many borrowers are still on the hook to their lenders.

Fig2

These car loans are also widespread. Using data organized by the Urban Institute’s “Debt in America” series, it’s possible to see how borrowers across the country’s 192 largest metro areas are faring. Nationally, 31% of Americans have a car loan, but these rates are often higher across the country’s largest metro areas, where driving to distant jobs and other services has become a daily reality. In 112 of the 192 largest metro areas, car loan rates were higher than the national average, including sprawling metro areas such as Buffalo, N.Y. (38.7%), Omaha, Neb. (37.5%), and Tampa, Fla. (33.4%). In contrast, denser, urban metro areas offering greater transportation choice—such as New York (22.6%) and San Francisco (23.6%)—have among the lowest rates, as do many college towns, including Boulder, Colo. (25.5%) and Eugene, Ore. (27.4%).

Map1

Car loans are not going anyway anytime soon, even as we drive less and buy fewer vehicles during the pandemic. This debt continues to take a toll on millions of borrowers across the country at a time when the economy is struggling to regain its footing. Even if they have not lost their job—and many have—lower-income individuals are among the hardest hit. Stimulus checks and loan forbearances have helped manage the daily costs of living, but these are temporary solutions at best.

Supporting households with high transportation costs would be a good first step. While other escalating costs, including housing and student loans, are concerning and require more attention, infrastructure affordability is often overlooked by national and local policymakers. We need to better measure and address the escalating transportation costs that households have to cover, while continuing to discuss the affordability of water, broadband, and other infrastructure services. Customer assistance programs might make a difference, as they have for other services, but we need to better understand the scale of the transportation affordability challenge—which goes beyond car loans—and target resources for individuals in greatest need.

Providing greater transportation choice is also a must in years to come. Decades of bad planning and community design have forced many Americans to keep owning a vehicle, but there is potential to take advantage of the current coronavirus moment as we drive less and encourage a broader range of transportation options. Rather than jumping back in our cars and continuing to take on more loans, why not invest in places that promote greater walkability and freedom of movement instead? In the many communities where walking and transit cannot work, however, individuals should have more affordable options to access vehicles without owning them. Safer rental and ride-hailing possibilities are a potential strategy.

Protecting borrowers would help as well. Fair lending practices, including anti-discrimination measures and negotiable loan terms, could make a difference for subprime borrowers who are targets for costly loans. The Consumer Financial Protection Bureau has strengthened regulations and released guidance on car loans to prevent borrower discrimination, but more recent congressional action has aimed to deregulate borrower protections. If anything, we need more robust protections during and after the pandemic.

Our transportation affordability challenge is not isolated to the current recession, but we should address it now to aid in our recovery. As the economy begins to open again, people need to get back to work and physically access opportunity with greater financial certainty. Reducing the impact that car loans have on our ability to do so should be a key policy consideration. Otherwise, we are only setting ourselves up for more costs and risks into the future.

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Federal Food Stamps Program Hits Record Costs In 2022

Federal Food Stamps Program Hits Record Costs In 2022

In early January, The Wall Street Journal Editorial Board warned that one peril of a…

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Federal Food Stamps Program Hits Record Costs In 2022

In early January, The Wall Street Journal Editorial Board warned that one peril of a large administrative state is the mischief agencies can get up to when no one is watching.

Specifically, they highlight the overreach of the Agriculture Department, which expanded food-stamp benefits by evading the process for determining benefits and end-running Congressional review.

Exhibit A in the over-reach is the fact that the cost of the federal food stamps program known as the Supplemental Nutrition Assistance Program (SNAP) increased to a record $119.5 billion in 2022, according to data released by the U.S. Department of Agriculture...

Food Stamp costs have literally exploded from $60.3 billion in 2019, the last year before the pandemic, to the record-setting $119.5 billion in 2022.

In 2019, the average monthly per person benefit was $129.83 in 2019, according to the U.S. Department of Agriculture. That increased by 78 percent to $230.88 in 2022.

Even more intriguing is the fact that the number of participants had increased from 35.7 million in 2019 to 41.2 million in 2022...

All of which is a little odd - the number of people on food stamps remains at record highs while the post-COVID-lockdown employment picture has improved dramatically...

Source: Bloomberg

If any of this surprises you, it really shouldn't given that 'you, the people' voted for the welfare state. However, as WSJ chided: "abuse of process doesn’t get much clearer than that."

In its first review of USDA, the GAO skewered Agriculture’s process for having violated the Congressional Review Act, noting that the “2021 [Thrifty Food Plan] meets the definition of a rule under the [Congressional Review Act] and no CRA exception applies. Therefore, the 2021 TFP is subject to the requirement that it be submitted to Congress.” GAO’s second report says “officials made this update without key project management and quality assurance practices in place.”

Abuse of process doesn’t get much clearer than that. The GAO review won’t unwind the increase, which requires action by the USDA. But the GAO report should resonate with taxpayers who don’t like to see the politicization of a process meant to provide nutrition to those in need, not act as a vehicle for partisan agency staffers to impose their agenda without Congressional approval.

All of this undermines transparency and accountability for a program that provided food stamps to some 41 million people in 2021. The Biden Administration is using the cover of the pandemic to expand the entitlement state beyond what Congress authorized.

The question now is, will House Republicans draw attention to this lawlessness and use their power of the purse to stop it to the extent possible with a Democratic Senate.

And don't forget, the US economy is "strong as hell."

Tyler Durden Sat, 01/28/2023 - 09:55

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Spread & Containment

A Royal Caribbean Cruise Line Adult Favorite Has Not Come Back

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn’t been brought back.

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The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn't been brought back.

In the early days of Royal Caribbean Group's (RCL) - Get Free Report return from its 15-month covid pandemic shutdown, cruising looked a lot different. Ships sailed with limited capacities, masks were required in most indoor areas, and social distancing was a thing.

Keeping people six feet apart made certain aspects of taking a cruise impossible. Some were made easier by the lower passenger counts. For example, all Royal Caribbean Windjammer buffets required reservations to keep the crowds down, but in practice that system was generally not needed because capacities were never reached.

Dance parties and nightclub-style events had to be held on the pool decks or in larger spaces, and shows in the big theaters left open seats between parties traveling together. In most cases, accommodations were made and events more or less happened in a sort of normal fashion.

A few very popular events were not possible, however, in an environment where keeping six feet between passengers was a goal. Two of those events -- the first night balloon drop and the adult "Crazy Quest" game show -- simply did not work with social-distancing requirements.

One of those popular events has now made its comeback while the second appears to still be missing (aside from a few one-off appearances).

TheStreet

The Quest Is Still Mostly Missing

In late November, Royal Caribbean's adult scavenger hunt, "The Quest," (sometimes known as "Crazy Quest") began appearing on select sailings. And at the time it appeared like it was coming back across the fleet: A number of people posted about the return of the interactive adult game show in an unofficial Royal Caribbean Facebook group.

It first appeared during a Wonder of the Seas transatlantic sailing.

Since, then its appearances continue to be spotty and it has not returned on a fleetwide basis. This might not be due to any covid-related issues directly, but covid may play a role.

On some ships, Studio B, which hosts "The Quest," has been used for show rehearsals. That has been more of an issue with the trouble Royal Caribbean has had in getting new crew members onboard. And while that staffing issue has been improving, some shows may not have had full complements of performers, so using the space for rehearsal has been a continuing need.

In addition, while covid rules have gone away, covid has not, and ill cast members may force the need for more rehearsals.

Royal Caribbean has not publicly commented on when (or whether) "The Quest" will make a full comeback

Royal Caribbean Balloon Drops Are Back   

Before the pandemic, Royal Caribbean kicked off many of its cruises with a balloon drop on the Royal Promenade. That went away because it forced people to cluster as music was performed and, at midnight, balloons fell from the ceiling.

Now, the cruise line has brought back the balloon drop, albeit with a twist. The drop itself is appearing on activity schedules for upcoming Royal Caribbean cruises. Immediately after it, however, the cruise line has added something new: "The Big Recycle Balloon Pickup."

Most of the dropped balloons get popped during the drop. Previously, crewmembers picked up the used balloons. Now, the cruise line has made it a "fun" passenger activity.

"Get environmentally friendly as you help us gather our 100% biodegradable balloons in recycle baskets," the cruise line shared in its app. 

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Spread & Containment

What’s Still Missing on Royal Caribbean Cruises Post Covid

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn’t been brought back.

Published

on

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn't been brought back.

In the early days of Royal Caribbean Group's (RCL) - Get Free Report return from its 15-month covid pandemic shutdown, cruising looked a lot different. Ships sailed with limited capacities, masks were required in most indoor areas, and social distancing was a thing.

Keeping people six feet apart made certain aspects of taking a cruise impossible. Some were made easier by the lower passenger counts. For example, all Royal Caribbean Windjammer buffets required reservations to keep the crowds down, but in practice that system was generally not needed because capacities were never reached.

Dance parties and nightclub-style events had to be held on the pool decks or in larger spaces, and shows in the big theaters left open seats between parties traveling together. In most cases, accommodations were made and events more or less happened in a sort of normal fashion.

A few very popular events were not possible, however, in an environment where keeping six feet between passengers was a goal. Two of those events -- the first night balloon drop and the adult "Crazy Quest" game show -- simply did not work with social-distancing requirements.

One of those popular events has now made its comeback while the second appears to still be missing (aside from a few one-off appearances).

TheStreet

The Quest Is Still Mostly Missing

In late November, Royal Caribbean's adult scavenger hunt, "The Quest," (sometimes known as "Crazy Quest") began appearing on select sailings. And at the time it appeared like it was coming back across the fleet: A number of people posted about the return of the interactive adult game show in an unofficial Royal Caribbean Facebook group.

It first appeared during a Wonder of the Seas transatlantic sailing.

Since, then its appearances continue to be spotty and it has not returned on a fleetwide basis. This might not be due to any covid-related issues directly, but covid may play a role.

On some ships, Studio B, which hosts "The Quest," has been used for show rehearsals. That has been more of an issue with the trouble Royal Caribbean has had in getting new crew members onboard. And while that staffing issue has been improving, some shows may not have had full complements of performers, so using the space for rehearsal has been a continuing need.

In addition, while covid rules have gone away, covid has not, and ill cast members may force the need for more rehearsals.

Royal Caribbean has not publicly commented on when (or whether) "The Quest" will make a full comeback

Royal Caribbean Balloon Drops Are Back   

Before the pandemic, Royal Caribbean kicked off many of its cruises with a balloon drop on the Royal Promenade. That went away because it forced people to cluster as music was performed and, at midnight, balloons fell from the ceiling.

Now, the cruise line has brought back the balloon drop, albeit with a twist. The drop itself is appearing on activity schedules for upcoming Royal Caribbean cruises. Immediately after it, however, the cruise line has added something new: "The Big Recycle Balloon Pickup."

Most of the dropped balloons get popped during the drop. Previously, crewmembers picked up the used balloons. Now, the cruise line has made it a "fun" passenger activity.

"Get environmentally friendly as you help us gather our 100% biodegradable balloons in recycle baskets," the cruise line shared in its app. 

Read More

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