Saturday, May 03, 2008

Pay up, or default

Karl Denninger says it's time to settle accounts. Here's his estimate of the tab:

We have recognized $300 billion of losses but it has all been derivative loss. The $2.5-$3 trillion in credit loss from housing is still to come, plus all the credit card and other debt that cannot be paid down, likely a couple hundred billion more - at best.

= c. 20% of US GDP.


Semaj Mahgih said...

Since we can assume that none of the 42% of the people who pay off monthly are at risk of default (for obvious reasons) this means that about half of the people carrying balances are currently at high risk of default on their credit card bills.

I don't believe this can be assumed. They could well be paying out credit each month but in the price-income squeeze, where is this leaving their final balances?

They pay out three of five cards for example and it contributes to the stats or else they debt consolidate and that counts as payout.


I think you're right, and the contraction of secured lending is exposing the credit card crisis. And right again, some of the balances are very likely being vounced from one card to another. It would be interesting to see the figures for total c/c debt outstanding and how that has been changing in the last year.

dearieme said...

We always pay off our credit card in full every month. Except now, because we've been offered 6 months of 0% interest. What on earth is that about?


You're a good risk, so they want a bit lodged with you to balance the high-income low-quality borrowers that make their profit. I think you are, as it were, their "fractional reserve".