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Moody's Credit Card Index Hit Record 11.49% Record Charge-Off Rate In August
Ever wonder why iPhone sales are through the roof? It might have to
do with this. Consumers are once again using their credit cards,
however taking a cue from the Chairman's promotion of moral hazard to a
state-sponsored nationwide doctrine, they have decided simply not to
pay their bills. Moody's Credit Card Index confirms this, after hitting an a new record Charge-off Rate in August of 11.49%, a 68.5% increase year over year. And where charge
offs rule, delinquencies are not far behind: August delinquency rate
hit 5.8%, a 26.2% increase YoY. August was a sharp reversal in prior
improving trends, indicating that the consumer weakness is not getting
any better, and in fact, just the opposite. Read below from Moody's:
After
improving over the past several months, credit card performance broadly
deteriorated in August, according to metrics tracked by our Credit Card
Index. Notably, the charge-off rate index advanced resoundingly to a record-level high 11.49%. Accompanying the rise in charge-offs was an increase in the delinquency rate. Even early-stage delinquencies rose, ending a trend of four consecutive months of improvement.
August’s
performance reversed some of the seasonal improvement in April-July.
August traditionally introduces a seasonal period of rising delinquency
rates. We continue to call for a recovery of the credit card sector to
begin once industry average charge-offs peak in mid-2010 between 12%
and 13%. This forecast is largely driven by macroeconomic indicators,
in particular, a coincident peak in the unemployment rate of 10%-10.5%.
Industry
payment rates also weakened in August following what is now a secular,
long-term trend of decline. We expect weakness in the payment rate to
persist in 2010 as the void of home equity withdrawal and lower
purchase volumes among convenience users (i.e. cardholders who pay
their balance in full each month) will drive payment rates lower. From
1990 through 2003, the average annual payment rate never exceeded 15.3%
(Figure 1). For the next five years, the average payment rate jumped to
18.03% as home equity extraction provided a ready source of funds for
consumers to repay credit card debt. The average payment rate in 2009
thus far is just 16.4%, and we expect further weakness throughout the
remainder of the year.
While the yield index continued to
rise with the aid of principal discounting, the increased revenues were
not enough to offset the sharp rise in charge-offs, causing the August
excess spread index level to narrow. Much of this improvement in yield
is attributable to approximately 260 basis points of lift to the index
as a direct result of issuer principal discounting.
So even as the Fed sees a "strengthening of economic growth and a
gradual return to
higher levels of resource utilization in a context of price stability"
consumers keep on spending money they don't have and, worse, they have
no intention of paying. Yet the economy and the market will keep
melting up until such timeas the dollar ceases to exist and the middle class in America realizes it too has followed suit.
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Nothing to see here. Move along!
I think the smartest move is to take a cash advance out to buy shares in a value-oriented financial institution like Wells Fargo (or maybe AIG).
The new "carry trade": borrow on your credit card, buy equities and HY, don't pay your card bill. Free money. Genius.
Dow 10,000 today!!
Proving the messiah is truly an economic genius (as the administration measure the economic health of the US in dow points).
In a classic cramer moment, he is now justifying the move in AIG.
Seriously, I must be stoned.
Thank god I turned it off cause that might have done me in...however, should mean a good chance that's the turning point for AIG fun fest...
Rockerchic4God has now hit the 254k mark. I even hear it from small business owners that they are racking up supply inventory, then screwing the supplier, because their customers are not paying them.
Posted on ZH some time ago.
http://market-ticker.denninger.net/archives/1419-And-So-It-Begins-Debtor...
Maybe the sheepeople aren't that stupid & they realised Obama's been taken up the garden path by bailing the Bank creditors under the so called " multiplier effect".
In the End, they Know, the only way out of this mess, is if the Debtors get bailed out!
Why pay anything off, when you know it will get written off by uncle Sam?
"In the End, they Know, the only way out of this mess, is if the Debtors get bailed out!"
Honestly, I'm starting to think this way myself. I pay all my debts out of principle, but I'm starting to forsee a day when everyone from Uncle Sam on down has to say "listen, you know we're not paying you back."
On that day, those with huge houses full of leveraged toys and expensive cars will be the winners. Of course, they'll be driving those cars to the bread line (assuming they can scrap together change for gas at $.50 a gallon), but still.
I expected this long time ago. there is a proverb(Can't remeber which language),with rough translation like this"If the head of household is a drummer, then the hosehold habit would be dancing".............
regular Americans defaulting on credit cards? Bloomberg announces today that a Russian has just bailed out the new york Nets as they were on brink of defaulting. The Nets will continue with massive tax abatements and US taxpayor subsidies to continue their money losing enterprise. Of course Jack welch and his 300 million taxpayor funds and his NBC will continue to air the money losing NBA. More ridiculous everyday.
This is some funny stuff http://www.theonion.com/content/video/breaking_news_bat_loose_in?utm_sou...
I like the way they come up with a story. This reminds me of an 83 year old lady.....
I love to hear them just make up those stories.
Steve keen gives a good overview on what the Public already Know, they just don't use
those fancy economic names. :-)
In the end the debtors will be bailed or the game is over anyway.
www.debtdeflation.com/blogs/2009/09/19/it’s-hard-being-a-bear-part-fiv...
Of course this number is shooting up. The Debt Settlement business is booming. (Debt Settlement - Where you tell your credit card company you're only going to pay $.25 on the dollar and they better take it or they'll get zilch...99.9% of the time they take it... I've seen people offer $3,500 to pay off a $22,000 bill and the CC company takes it).
The debt settlement business is taking people in with good credit who can pay their credit card bills and explaining to them that a holy land with a thousand virgins is on the other side of the rainbow and all they have to do to get there is stop paying their credit card bills for a while in order to save up enough money to negotiate a settlement with the credit card folks and the whole debt will be erased -Everybody wins baby!! (and if you sign up now I'll throw in a free toaster)
When the charge-off rate hits 20%, it will trigger the zombie apocalypse. Forewarned is forearmed.
Thanks for posting this important piece TD.
Should buy COF $25 puts. Gap in the charts at $24
So the peons have realized that they can all just run up huge debt and not pay it off. Hey, why not? The big boys do it, why not the little guys too? Join the party.
Propagate the defaults back through the network and it culminates in financial institutions going bankrupt then getting a bailout from taxpayers, so the peons end up paying anyway. The biggest sucker in this game is the hard working, tax paying, law abiding citizen, and the biggest winner is the unemployed, benefit drawing, credit using citizen. Exactly the same pattern we see in the corporate world with decent companies being sucked dry to pay for loser financials.
Well done leaders, this is what you have created. Moral fucking hazard. What happens when you suck the last decent citizen / corporation dry? When every decent institution that can, leaves America for greener pastures? When taxpayers finally say "fuck this" and refuse to pay? What then you retards? You going to throw half the population in prison? Yeah, good luck with that.
So the bottom line is... the hard-working, tax-paying, law-abiding citizen is being held hostage by his own morality.
The CCCs don't care about the defaults. They'll get bailout money to make up for those loses.
What's the worst thing that will happen to you if you purposely stop paying you CC bills?
Your Credit Score goes down. That's it. Nothing else.
Great figures in the stats.
debt settlement