Delinquency rates surge to 2008 levels, fueling fears of economic collapse.

by

The last time delinquency rates surged to this extent was during the 2008-2010 financial crisis, but today’s situation is even more dire. Credit card defaults are rising at record levels, with the delinquency rate on credit card loans reaching an alarming 3.23% in Q3 2024. This marks a significant increase from previous years and signals a troubling trend.

From the 1940s to the 1970s, Americans saved around 10% of their annual income. However, today’s savings rate has plummeted to a mere 4.4%, entering contraction territory. This drastic decline in savings has forced consumers to rely heavily on debt, leading to a 20% growth rate in credit card debt. As a result, credit card debt has now crossed the $1 trillion mark, the highest level ever recorded.

The situation is further exacerbated by record-high credit card interest rates of 21.76%, nearly double what they were just a few years ago. This has made the cost of carrying debt nearly unbearable, causing defaults to climb rapidly and showing no signs of stopping.

The implications of this crisis are profound. With consumers spending more than they earn and depleted savings from the 2020 pandemic, the economy is teetering on the edge of collapse. The rising unemployment rate and increasing delinquencies across all loan types paint a grim picture of the future.

As we brace for what could be the worst economic downturn in history, the question remains: how will policymakers and financial institutions respond to avert a full-blown catastrophe?

Sources:

https://www.consumeraffairs.com/finance/mortgage-delinquency-rate-trends.html

https://fred.stlouisfed.org/series/DRCCLACBS

https://www.newyorkfed.org/newsevents/news/research/2024/20240206