This is all just theoretical nonsense, but definitely a situation that is becoming a prime problem in the U.S. economy right now. The question I have is what would happen and what would be the immediate consequences/impact if enough people defaulted on their credit card payments? Not that the delinquency rates are anywhere near what they were in 08 but they are on the rise. I’m sure major institutions would take steps to pad their bottom line and banks would be panicking trying to meet their own obligations because of the amount of disappeared revenue. Sure a lot of banks would fail and there would probably be some sort of government response or bailout, I don’t know. This is more morbid curiosity than anything but thanks for answering my stupid question!
Credit Card Delinquency Rates
byu/MistaDropshot inwallstreetbets
Posted by MistaDropshot
15 Comments
I think at the delinquency rates needed to really put the banks over a barrel we would have bigger problems. 08 happens because they would give single school teachers a 250k mortgage. That 2k overdue credit card isn’t the same kind of risk.
Believe it or not, calls, because the market doesn’t care about these things anymore. Why would people defaulting on their credit cards mess with Nvidia selling chips to OpenAI for money that doesn’t or will ever exist?
I think most major credit card companies/banks have enough good loans on their books to balance out the extreme risk associated with extending lines of subprime credit. Sure it’d be a big hit if tons of CC’s went into default suddenly, but these institutions do a ton of risk management to balance it out so they’d be fine or just set themselves up to be acquired by a bigger fish.
You really only get into trouble when large loans like mortgages suddenly go delinquent (2008 crash) or when businesses default on big business loans (the dotcom bubble crash). Personally I’m more worried about the laundering of capital between mega corps for “AI”. It appears that these big “deals” with Nvidia and the top dogs are simple methods to cook all their books and make it seem like money is rolling in. When a company’s books look good their stock continues to climb and investment dollar continue to poor in. It’s only a matter of time until AI does or doesn’t produce that insane profits that are being promised. This happened in 2001 when the .com companies got all these huge venture capital deals based on “projected future profits”. When these .com companies couldn’t turn profits, they defaulted on their loans, and the markets crashed. The same is highly likely to happen minute that AI doesn’t turn a profit or regulators step in to stop these insane deals that are inflating the stock market beyond reason, without a product to show for it. I mention regulation because you could argue, with all these current deals cooking all the books, that it’s anti consumer and dangerous for the economy as a whole.
Post summary :
What would happen if 08 happened again ?
Credit card debt like mortgages and car loans are secured by bonds. If defaults rise, those bonds have to be sold to secure the defaulted debt. If bonds sell, rates spike essentially making debt more expensive. In the case of the current AI financial landscape the whole machine is contingent on a smooth bond market. Especially as a lot of the SVP loans that finance data centers need to be refinanced every 2 years. So a sudden spike in bond markets because of cracks to consumer credit, a housing market crash and/or rise in delinquent auto loans will kill the datacenter demand/pipeline which in turn causes major players like NVDA and AMD to have to reduce guidance. You can learn more about how these relationships by studying the M1 and M2 money supply and how the fed uses monetary policy to combat inflation and control interest rates.
But with all the layoffs, its not just credit cards, its home foreclosures too,
50 year loans my man
I think it’s a problem mostly isolated to subprime, same thing with car loans. Delinquency rates aren’t anything alarming yet, I mean they could be but the general consensus is probably right. They have enough good loans to carry them, they would write off the bad debt, you’re not going to get a giant move out of this.
If you’re thinking disaster scenario, the unemployment rate would need to start trending up. If you just see job losses after job losses and the rate is ticking up along with this happening you could have trouble. That would hit GDP. Even when the FED cuts, a lot of you guys are conditioned to cut meaning up, if the economy deteriorates bad enough the up part is delayed. You can look at 2001 and 2002 to see how that scenario goes. The FED is rapidly cutting as the market goes down. Earnings fell apart. I think they would get more in front of it these days but you still can have a smaller version of that
I waited on CC delinquency in 2022 and 2023. In 2024 I forgot about it.
Private and public debt and stocks are at all time high levels. When everything is leveraged there’s a risk that a single fracture in the market cascades everywhere. But I’m not sure if we are there yet, SP500 might still go up another 1-2 years and the debt keeps accumulating.
I think the first time I heard about that theory was an article from Zerohedge somewhere in 2012. We are still waiting for the massive panic attack though.
I get it; this time it is different, right? How different from post covid the same narratives came again? and post inflation peak in 2022.
You need to understand that credit card bills are a tiny proportion of the banks balance sheets. I know they suck and they to do some really stupid things (cf 2023 and that glorious bet that rate would never go up again…) but you have to respect them a little bit more than that.
CC rates are so high there is no risk ~ pple that carry a balance pay for stuff 3x banks make $ back and a lot more. Insanely profitable business. Lending money at 28%…that’s insane
Rates are high so delinquency rates are higher this is normal.
Now if we had 0% rates and raise in delinquency then u have a problem
They lend $10 for every $1 they hold.
Take a breath and think about that for a second. Do the math.
If 9 out of 10 default they still broke even. Plus they will get collateral like cars and houses and land.
So even at a 90% delinquency they’re making out like bandits. People need to get better at math across the board. This isn’t a personal attack but a recommendation you get better at math. It’s a modern survival skill.
Big takeaway: You’re fucked if you don’t pay that bill in full every month. Get out of that immediately and if you don’t have the discipline to pay it off monthly, shred it. I go without. Whatever it is that you think you need to spend money on, well, you can’t afford it. So examine the monetary situation in front of you and ask yourself if you need it to live.
Forget about anything you want right now. This economy, you need to move to where the cheap food is. I’m shopping, groceries here are stupid high. Don’t get trapped. I know alot of people upside down on their home and behind in taxes. I know people $40k upside down on their car. They ask me if I’m rich. I’m like, “No. I just spend money very well.” People do this to themselves. They want things and the credit agencies are more than willing to give you enough rope to hang yourself with it.
Except the second trump dies or impeaches or retires in 2 years the world will hum As before with newfound appreciation for things we took for granted