As someone who warns about dangerous economic bubbles, one of the things that irks me the most is when politicians and business leaders praise debt-driven growth booms and the jobs that they create. Like any normal human being, I love to see society moving in a positive direction, people finding high quality jobs, businesses generating profits, and stock prices rising - but it needs to be sustainable.
What good is a debt-driven boom that creates temporary growth, but an economy-destroying crash later on? In many ways, it's like comparing a temporary recreational drug high (and inevitable crash) to a positive mood created by healthy living and exercise - the first is unsustainable, while the latter is sustainable.
As I've explained in the past, periods of low interest rates are conducive for the formation of economic bubbles and temporary growth booms. Low rates allow consumers to borrow more cheaply to buy houses, cars, and rack up credit card debt. Since 2009, U.S. interest rates (and therefore automobile financing rates) have been at a record low, so it's no surprise that consumers have taken advantage of the cheap credit to buy shiny new cars.
This credit-driven auto boom is a major reason why you keep hearing stories about "Detroit's resurgence" and the "U.S. manufacturing comeback." Unfortunately, interest rates will rise and a bust is sure to follow. Cracks are already beginning to show even though interest rates have barely started to rise - "seriously delinquent" auto loans have been ticking up in recent quarters.
To my ear, when President Donald Trump praises the U.S. automobile boom, it sounds strikingly similar to economists and business leaders who were praising the economic activity and jobs created by the 2003-2007 U.S. housing bubble - "look at all these great jobs being created! Lots of new jobs for construction workers, real estate agents, and mortgage bankers!" Unfortunately, when that debt-driven boom turned into a bust, many of those jobs were lost and the entire sector dragged the rest of the economy down with it. I believe that the current automobile boom will follow the same path.
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