Credit card defaults are up 50 percent from a year ago.
All Is Not Well for Lower Income Groups
Please note US Credit Card Defaults Surge to Highest Level Since 2008
Defaults on US credit card loans have hit the highest level since the wake of the 2008 financial crisis, in a sign that lower-income consumers’ financial health is waning after years of high inflation. Credit card lenders wrote-off $46bn in seriously delinquent loan balances in the first nine months of 2024, up 50 per cent from the same period in the year prior and the highest level in 14 years, according to industry data collated by BankRegData.
Write-offs, which occur when lenders decide it is unlikely a borrower will make good on their debts, are a closely watched measure of significant loan distress. “High-income households are fine, but the bottom third of US consumers are tapped out,” said Mark Zandi, the head of Moody’s Analytics. “Their savings rate right now is zero.”
The sharp rise in defaults is a sign of how consumers’ personal finances are becoming increasingly stretched after years of high inflation, and as the Federal Reserve has left borrowing costs at elevated levels. Banks have yet to report their fourth-quarter numbers but the early signs are that more consumers are falling significantly behind on what they owe. Capital One, the US’s third-largest credit card lender, after JPMorgan Chase and Citigroup, recently said that as of November its annualized credit card write-off rate, which is the percentage of its overall loans that are marked as unrecoverable, hit 6.1 per cent, up from 5.2 per cent a year ago. “Consumer spending power has been diminished,” said Odysseas Papadimitriou, head of consumer credit research firm WalletHub.
Ivory Tower Economy vs the Real World
Surging defaults provide another hard reason for why Trump won the election.
Ivory tower economists keep saying everything looks great.
But polls kept showing huge concerns over the economy. The economic polls, not the economists were right.
Continued Unemployment Claims Make a New High for the Year
As defaults soar, please note Continued Unemployment Claims Make a New High for the Year
From August of 2023 until April of 2024, it was easy to find a job if you lost one. That has not been the case starting May of 2024.
Recession Indicator
I created a recession indicator using a moving averages of 15-weeks or longer unemployed.
For discussion, please see Two Recession Indicators, What Do They Say Now?
I feel for those in the bottom third. For awhile to come, the ladder of opportunity is scarcely reachable. Ultimately things like housing markets will reset, but that is cold comfort, and one needs cash flow to bridge that indeterminate time, and meanwhile stay off the sidewalks. All that said, the overall financial lives of most of that bottom third have been poorly constructed to weather these risks. I saw that long ago for myself, and the price for me (paid in advance) of maintaining a reasonable and free life was, among other things, living always lean, and having no kids. I will pay a price for it later, but that is that. I accept the price with no whining. So many people feel entitled to things that in fact represent major decisions and risks, it turns out they must bear for themselves. The former welfare state has grown more patchy, it has gaps, get used to it. BTW, I have maintained and grown my nest egg through and after the pandemic, despite no substantial raises in decades, with an improving credit rating. It takes forbearance: going without. Saying no to oneself, sternly.
Sacrifices must be made if my hoard is to continue growing.
At least 13% of the population never intend to pay off a credit card or a student loan. They didn’t pay rent or mortgages during the covid moratorium. Everything’s free in America.
Eventually they will pay the price
Zero Hedge is stating this is affecting the lower 1/3 of the population. Defaulting on credit card debt is going to make the situation worse for these people. They will have a problem getting an auto loan and a landlord who will be willing to rent to someone with bad credit. A Decrease in auto sales will also significantly affect the economy. Auto sales are currently down due to prices and interest rates.
This was a bit of a shell game with loose credit and freebies we saw for many years now. But now the Fed cannot manipulate rates much. The bond market is not buying it, meaning a couple quintiles of the population are making some price discovery.
The more they are cavalier about inflation – and boy have they been cavalier this year – the more longer rates will rise and no matter what it’s going to be impossible for them to get us back to ZIRP.
Mind you with inflation in services stuck at around 5% (majority of the US economy) and durable goods also headed back up, yields are still below the real rate of inflation.
I expect that to change with time. Brazil with rampant inflation now has yields at 15% – think we can’t get there? In the 1980s we got higher than that and it was painful, but there you are.
So what? Wake me up when when credit card delinquency rates are 30% higher reaching the levels they were at prior in the past 2 recessions….
And some people still wonder why Trump won.
I don’t understand why morons want guidance expecting someone to solve their problems.
I don’t want anybody taking care of my problems. If they’re mine, then it’s my job!
There is plenty of guidance available out there, so nobody should require it. A little help sure, but that’s also readily available.
Forgot check is on the Mai.
I’m with you!
Both renters and homeowners have faced higher shelter prices. Rent has yet to catch up to home ownership prices.
Don’t you mean the opposite? Rent has gone up far faster than home mortgages.
In my town, both blew out through the roof, and still are. I ate ramen and paid my mortgage nonstop through the ’08 period, I’m so glad I did.
If you came here expecting strokes for self denial let me clue you in: good for you, no one cares. You’ll get more of the same in your old age especially since you espoused childlessness. Having a child is a gift and a privilege that is repaid in your “golden years” an expression that cannot be valued in dollars.
hahaha… and half the time at least — children turn out to be complete f789 ups… or if they are not they abandon you in old age
everybody got the same bullchit story about eating ramen. when in reality their parents funded their college and house buying
This is happening despite the government having borrowed a record amount in the first two months of the fiscal year, on top of last fiscal years deficit. Was just reading on ZH, that China is undergoing the biggest military build up since Germany, under Hitler. Another sign of the times.
Do we have a consolidated list of all the variables that would indicate recession/economic contraction? This would seem to be one worthy of inclusion.
Well-sourced data I’ve seen say the top two-thirds are better off than ever: lower delinquencies, more savings, wealth and income. But one third isn’t to sneeze at, and yes, markets can shift fairly quickly.
The pop up adds on this site are getting very annoying.
Never been a problem for me. Try browsing with DuckDuckGo and/or using a VPN with ad blockers.
I use Duck Duck go and I don’t get pop ups.
50% y-o-y increase in credit card defaults is so eye-popping that no chart is necessary. Eventually enough people with portfolios will sell investments to pay off debt or because of fear. Where will those selling out of fear put their money? US dollar? It has been rallying the past couple of months. Gold? It’s been steadily climbing long term. How many liquidating to pay debts will sell gold?
I saw a youtube video regarding ‘junk silver’ that was posted a few days ago. A lot of local coin shops are seeing large amounts of junk-silver being sold back to the shops. Many of the dealers are assuming that their clients are cash-strapped and need to generate funds to pay their bills. Sounds correct in my opinion.
“50% y-o-y increase in credit card defaults is so eye-popping that no chart is necessary.” I respectfully beg to differ. Defaults are coming off a historically low baseline. That’s like saying a 50 percent increase in some vanishingly rare cancer needs “no charts.” So it went from two to three people last year on the whole planet? Basic statistics: there is a big gap in this data. Media plays this all the time, as it attracts clicks (I don’t mean disrespect to Mish, who constantly dishes up thought-provoking stuff). Numbers worth noticing, absolutely, but perhaps not a reason for most of us to leap to a full panic scenario.
Bidenomics at work. By 2030 you will own nothing and be happy. Right, right.
Maybe you won’t own anything, but I will.
A remark worth every cent I have paid for it. Actually, not worth the time/attention I have expended on it. The value is thus negative.
This is a history of excessively loose credit going back to 1987. We are at the end of a very long path. I’m not excusing Biden’s buying votes with free stuff. But a little perspective is very useful. Let’s see how 2025 plays, if we are working off such a short and political time horizon, with such shrill and simple labels. But I never hear back from such types, when the world fails to dance to their remarks.
This info. is quite overblown. Actually, the overall credit card delinquency rate is very clearly leveling off. It’s a bit higher than the pre pandemic rate but not by much.
See https://fred.stlouisfed.org/series/DRCCLACBS
Buzz kill.
Great catch, QTPie. It appears to me that defaults were abnormally low during the time of covid stimulus and are now returning to normal. The doom & gloom permabears here will still be talking about a recession when the S&P is at 7k next New Years Eve.
Good context. But:
“very clearly leveling off” carries an embedded opinion about the (unknown) future. The future cannot be a fact; it is an opinion, like the famous, “house prices are only going up.”
That statement wasn’t a prediction but an observation of the rate of change in default rates in the past several quarters vs. the rapid increase in default rates from the abnormally low rate during the depth of of the pandemic.
There is some analysis about immigrants financial behaviour? How many, and how much, have savings. If they borrow from shadow bankers. Spending priorities: a car, health, education…
They are millions, impacting the US economy in many ways.
This is info we absolutely should have.
I’m guessing they are better savers than the average American. The immigrants are without a doubt better savers than the US Congress, who have put us 36 trillion in debt.
Silence Of The Labs: How A Censorship Campaign Failed To Kill A COVID Origin Theory
As media cover up efforts failed and more information emerged supporting the lab leak theory, many media figures just looked at their shoes and shrugged.
Others became more ardent. In 2021, New York Times science and health reporter Apoorva Mandavilli was still calling on reporters not to mention the “racist” lab theory.
We have paid too high a cost to simply shrug with the media and walk away. It is a question not only of whether China is responsible but of whether our own government effectively helped conceal its culpability.
https://jonathanturley.org/2024/12/30/silence-of-the-labs-how-a-censorship-campaign-failed-to-kill-a-covid-origin-theory/
Another indicator of too many living above their means?
The fundamental problem for these “struggling” people is an inability to think or plan. I suspect what’s draining these people’s finances are dumb decisions like buying expensive cars. Well if you buy an expensive car, it’s going to have expensive insurance and maintenance. As inflation continues to grind higher (always), it will drain more and more resources.
I warned about insurance years ago and now I’m warning about the next big drain, utilities. Specifically, electricity demand is soaring because of EVs, AI, data centers, cloud and general use. Anyone with any semblance of intelligence can forecast that electric rates will skyrocket at some point in the near future. Trump’s hostility toward green energy (wind, solar, etc) will only make the problem worse.
There are also issues with water. No the H2O itself but with the infrastructure that holds it, distributes it and reclaims it. Most of the pipe infrastructure is 100+ years old and will need to be replaced. Not sure who will do the heavy lifting with Trump kicking out the slave wage labor but if it’s going to be union labor, expect to pay through the nose. Upcoming shortages of electricians, plumbers, carpenters, welders, mechanics, and more.
Don’t worry, I am positioned for profiting from this already in case you’re wondering.
Once again, you have been warned.
Cluck your toungue and stroke your beard – the foolish masses who are wasting money on expensive vehicles instead of saving for the future!
While most aren’t in a position to do well for themselves, everyone can better their individual situation through personal choices. Many don’t.
Infrastructure-wise it’s worse than a labor issue. Demolition and reconstruction is much more expensive and time consuming than building new in an undeveloped location. As a result, most cities only respond to pipe breaks and make repairs instead of wholesale replacement of lines and that can be costly for nearby property owners.
Uh, yeah, I don’t see how hostility towards green energy will make energy problems worse. If green energy was such a savior I think Germany would be doing much better on the de-industrialization front. Green energy cannot provide the supply necessary. It is the sycophantic push of the market into green energy instead of sources like natural gas and nuclear that has made and will make energy costs worse.
Comparing Germany to the U.S. is like comparing a squirrel to a whale. A key problem with oil & gas aside from the pollution is that the vast majority of it is produced and refined in concentrated areas prone to war, hurricanes, flooding and tornadoes. Heck Texas just had some severe tornadoes in the middle of winter!
Speaking of Texas, it leads the U.S. in green energy production but even that can’t keep up with the demand. We need ALL energy generation not just nuclear and gas. That’s the point.
Notce strawman argument you built there. Be a shame if anything happened to it.
I wasn’t comparing Germany to the US. I was commenting on the viability of green energy to fulfill a nation’s energy demand.
I was just reminded of Webb’s book, The Great Taking. Then there is Klaus Schwab and his globalist WEF, which talks of the people owning nothing and being happy, circa 2030. The Great Reset. Profits can suddenly vanish. Things are way out of whack and a shock to the system is coming.
I “own” plenty of things but the only thing i am interested in owning are assets that make me money, everything else is a money pit.
You started off right, but veered off track. Wind and solar can barely mitigate the increasing need for electricity, and their inconsistent nature makes them almost impossible to scale. Base load capacity is more vital, and we need more nuclear for that. Liquid salt thorium reactors would be a valuable approach. Safer and with fewer environmental risks. China is expanding that – although at a smaller scale than their expansion of coal-fired electricity generation.
WRONG! For 5 billion years, living things have done fine living off solar and the wind and water. The real crisis here is fat ass people that want to get into their gas guzzling SUV to drive somewhere like a grocery store so they can gorge on excess food stored in their fridge. Or worse, go on a leisure drive to go take photos of things 10,000 people have already photographed.
Imagine you woke up tomorrow and all the electricity was gone. Who is going to hurt the most? Do you think a village in Africa that has no electricity will be affected in any way?
“The meek shall inherit the earth” is a deep thinking quote for those capable of deep thinking. It all starts to make sense at some point and we’re rapidly approaching that point.
And you’re one of the meek, I suppose?
Dearest Hypocrite,
Why the hell are you using electricity to troll this comments section and do troll things (like trying to guilt trip people who use electricity) that 10,000 other trolls have already done? Why don’t you get your skinny ass into your Prius and you and your boyfriend drive over to an SUV dealership and puncture all the tires? Or go burn down a camera store?
You can do better than virtue signaling. Be better.
This famous quote epitomizes the problem.
When people are incapable of making informed decisions in life, what is to be done about it? Poor life choices and financial decisions will affect not only a single person but their whole family in numerous direct and indirect ways. Yet it is not PC/woke to try to help such people by pointing out the mistakes in their past decisions and offering guidance going forward.
For example, if someone is homeless, it is most often due to prior poor life decisions. But it is not allowed to point this out. Doing so will get you ostracized or any related posts you make on most MSM forums, deleted. All that is allowed is sympathy.
This needs to change.
– Another indicator of too many living above their means?
> Perhaps more of an indicator that people have no choice, if they wish to eat, Heat their home, and put gas in their cars to get to work.
I recently asked my limit to be reduced, as I often do for security reasons. Wish to Guess why I often do? Because not all that long, after I have them do it, they move it right back up, and even higher sometimes.
Motive you think?
A lot of people, from rich to middle to poor, have seemingly been made complacent by govt handouts, not appreciating the chance of hard times ahead, making little to no efforts to prepare, thinking their lifestyle of relatively available resources, that they’re unaware is heavily subsidized by debt, will continue without much interruption.
I seriously doubt that people defaulting on credit and living hand to mouth were following politics or voting unless they are hoping that Trump will return to office and immediately start sending out new handouts to everyone.
Ready for your $1400 gift from the Trump government?
The connection is there, but not that specific. People are behind on their credit cards because their personal economy is crappy (and they spend too much). Meanwhile Wille Brown’s stupid side chick – Kamala – was babbling some unintelligible nonsense and wanted to pay for prisoners’ sex changes.
No, their personal finances are stretched because they SPEND TOO MUCH.
Don’t Buy Stuff – Saturday Night Live
The sure-fire way to get out of debt. Aired 02/04/06
https://www.youtube.com/watch?v=R3ZJKN_5M44
Humorous and point well made.
Impulse buying remains a problem for many.
A way to counter that emotional buying is to make a Game out of working with what one has.
How to stretch a buck and still get things a person may need or want.
Examine alternative sources such as used items found at garage sales or Ebay.
Learn to scrounge. It is surprising how much quality items are literally wasted and become available simply because they take a little hands on work to return them to service.
Have come across things such as high end garden tables and chairs, set out at the curb, which only needed a little sanding and couple coats of paint.
Yes its true everybody does not start out as a millionaire.
You do not have to be a millionaire to live like one. Especially when young.
I wonder if the BNPL era we are in now is going to end up with the same end result, rising defaults? I am thinking this is going to morph into a big problem at some point. Slowly at first then suddenly. It seems that every online purchase has this option. If I am at a max on my c/c then I would be tempted to use this option as many will.
– Learn to scrounge. It is surprising how much quality items are literally wasted and become available simply because they take a little hands on work to return them to service.
> I hear you! We have a transfer station where I live, and there are always items to find. I picked up a beautiful set of PGA Children’s clubs, a few weeks ago. I am taking my Grandson out to hit a bucket for his first time in a few days!
Great Advise!!!
I would wager that their savings rate has ALWAYS been zero or close to it.
Except for a brief period in 2021 – something anamolous happened then 😉
No need to worry about rising defaults because in 20 days, Trump/GOP will have full control of all branches of government and they will take us to the promised land.
Stock market will reach new highs
Unemployment new lows
Plenty of job opportunities
No DEI
No more open borders
Mass deportations
No taxes on social security
No taxes on tips
End of all wars
Low/no inflation
Rising wages for everyone
Elimination of all government agencies
Elimination of double taxation of expats (I personally look forward to this one!)
It’ll all be here in 20 days, just hang on. And if it doesn’t happen, then it’s “I told you so!” and “no one is going to save you!” We’ll see who the greater fools are in under a month. Mid-terms in 750 days.
Time to keep track of all those promises and follow through….
No rational legislature in either party is going to reduce taxes on SS or tips, as we all know it was political bulsshitting to buy votes. There are a lot of low IQ people who bought into it. Doesn’t mean Trump can’t be a force for beneficial change here.
I sometimes think Trump (who I voted for, while holding my nose) says some of his more absurd statements to prep for negotiations. It is working on the international scene already. I forget what the name of the psychological rule is but the idea is:
It is actually built into our DNA and marketing people and negotiators use it.
He can START to take a real good look at things, AFTER He takes office.
Of course He will have to fight for months, because of the Democrats, just to get a lot of the documents needed to then start reviewing, and make any such decisions.
So perhaps a thorough review by April/May time frame? Once that’s done, they can start to gather and discuss the suggested approach at that time.
Once that’s done, a much, much smaller set of documents will remain. Now they have something to work with, and now it’s around July/August.
I sense maybe by October or so, some serious proposals will be ready to vote on. Ones that will change the way America currently operates.
Obviously some decisions will be made right away. Secured Border, Clawing back as much as possible in funds, like IRS, Covid, and Ukraine for just a couple quick example’s. Many more like that as well too, as they have been working on some of the easier ones, that are already a mess, and just need to be scrapped, and the money returned to and/or for the People!
Give the Man some time, and “He Will Deliver” That you can count on!!!
We need a massive reset back to reality. We have been living in extend and pretend since 2008. Even before then, the whole economy was fraudulent to some degree because it was based on more on debt than equity.
I wish you were wrong, but anyone serious about addressing the debt would have to propose big tax increases and bigger spending cuts. Neither party would touch them with a 10 foot pole. The debt is like Stage 4 cancer … but chemo and radiation hurt a lot … morphine is much nicer.
The biggest irresponsible lender in recent years has probably been the US government which guaranteed lots of 3% down payment mortgages.
Tired of dealing with this China issue. The US needs to tell China that no more interest payments will be made on US debt held by China until the hacking stops.
That will probably drive interest rates up…no problem
The dollar would become worthless at that point as any foreign country holding US debt would head for the exits.
Firesale of treasuries to follow. That would show them.
I think I saw this movie in 2008. Will Hank Paulsen get on his knees for Mrs Pelosi? Will the banks be made whole, whilst the mortgagees are foreclosed upon?
This treadmill is getting threadbare.. a game of hot potato where fractured economic policies get tossed about until one sucker gets his hands burnt off.
Strange how difficult it is to build a stable economic system and how easy it is build castles upon sand.
My daughter works for a very large mortgage company and she was explaining how delinquent homeowners get away with not paying their mortgages. People can live for years without making a payment they just have to game the system. It was disgusting to me to hear how the govt rewards bad behavior. I wonder how many homes would be on the market for sale if the extend and pretend measures were not put in place. This may be one factor for persistent housing inflation
The system always punishes responsible people. Irresponsible people get debt forgiveness, extend-and-pretend, and do-overs.
Losing your home is a stressful experience. Especially if children are involved.
What you call “gaming the system” is people trying to hang on.
Mortgage lenders are not anxious to take over condos/townhouses which have defaulted homeowner dues.
Correct – they’d have to pay the arrears.
US should learn how to hack, surveil like China , N Korea or Russia. Uncle Sam is pitiful. Always victim of aggressors.
US Treasury says Chinese hackers stole documents in ‘major incident’https://www.yahoo.com/news/us-treasurys-workstations-hacked-cyberattack-202106004.html
Probably just templates for our currency. No worries. Chinese cannot dilute the currency more than the Federal Reserve.
How come we never hear stories of the US successfully hacking into Chinese or Russia or NK government agencies?
Trump and the DOGE team need to look in as to why we seem to be underperforming in this area!
It wasn’t a hack, but there was a series of disclosures a few years back-
https://www.reuters.com/article/world/us-spy-agency-tapped-german-chancellery-for-decades-wikileaks-idUSKCN0PI2AD/
Because the CIA does shit in secret.
Sure but I mean, the Chinese, Russians, etc. must catch them sometimes. I guess they would be embarrassed to admit that they got hacked and the NSA/CIA doesn’t want to prompt them to work harder to close holes in their systems by touting their successes. Oh well.
Oh gee, now they know that the deficit will be two trillion instead of just one, or some gem of Yellen’s mind. A real game changer. /s
How do these ‘security experts’ KNOW it was a Chinese group? Could this be more ‘disinformation’?
It’s probably all Russia’s fault. And Trump’s fault. Yup. /s
Seriously, why do people want central bank digital currency? ‘Threat actors’ are salivating right now.
Tptb needs something to blame for when they front run the 50% stock market crash, leaving ordinary people holding the bag. Maybe they’re trying to make China the boogeyman. China makes tons of money from the US just selling us ordinary things. Seems like they have little want or need to steal. But people should be aware the major stock indexes are in a huge bubble.