A jump in credit card defaults

Summary

Marketplace Morning Report: Episode Summary - "A Jump in Credit Card Defaults"

Release Date: March 11, 2025
Host: Marketplace
Host Contributor: Sabri Benishore
Reporter Contributors: Matt Levin, Jeffrey Cleveland, Jennifer Pack, Joe Tidy

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1. Surge in Credit Card Defaults

Overview: The episode opens with an in-depth analysis of the rising trend in credit card defaults among Americans. Despite a smaller increase in total credit card debt compared to the previous year, the rate at which consumers are defaulting on their credit obligations has significantly escalated.

Key Points:

• Debt Growth: Americans accrued an additional $74 billion in credit card debt in the past year, a slowdown from the previous year’s increase (Sabri Benishore, 00:32).
• Defaults Spike: Credit card defaults surged by 34% in 2024, totaling $59 billion, marking a concerning trend (Matt Levin, 00:56).

Factors Contributing to Defaults:

• Inflation: Persistent inflation has heightened the cost of living, making it difficult for consumers to manage credit payments. “Inflation is a huge factor because the cost of everything has gotten so high,” explains Chip Lupo, WalletHub analyst (Jeffrey Cleveland, 01:16).
• Increased Reliance on Credit: More individuals are relying on credit cards to cover essential expenses, exacerbating debt levels (Sabri Benishore, 01:21).
• High Interest Rates: Rising interest rates, partly due to the Federal Reserve's rate hikes, have led to higher credit card APRs, currently averaging around 22-23%. This acceleration means consumers are often paying more in interest than their actual debt balance (“You wind up paying more in interest than your actual balance,” Jeffrey Cleveland, 01:36) (Matt Levin, 01:25).

Impact on Demographics:

• Older Adults: The burden of high credit card debt disproportionately affects older adults. An AARP survey highlighted that nearly half of adults over 50 with credit card debt cannot cover basic expenses, and over a third of seniors over 75 are still carrying credit card debt (Matt Levin, 01:51-01:59).

2. Market Volatility Amid Trade Tensions

Overview: The episode transitions to the recent turbulence in the financial markets, triggered by President Donald Trump's announcement to double tariffs on Canadian steel and aluminum. This move has reignited trade tensions, resembling a trade war.

Key Points:

• Tariff Announcement: President Trump declared the doubling of tariffs on Canadian steel and aluminum, effective the next day, in retaliation to Canadian tariffs—a clear escalation in trade conflict (Sabri Benishore, 02:08).
• Market Reaction: Initially calm, markets became volatile following the announcement, with investors expressing uncertainty over the potential economic fallout.

Expert Insights:

• Economic Uncertainty: Jeffrey Cleveland, Chief Economist at Paden and Regal, discusses the multifaceted concerns driving market anxiety, including tariffs, potential government spending cuts, and layoffs. “Investors are just very concerned about what the growth consequences of this policy mix might be,” he states (Jeffrey Cleveland, 02:42).
• Economic Indicators: Recent weak data points, such as job market concerns and potential GDP contraction in the first quarter, have heightened fears of an economic slowdown. “We have seen some estimates for first quarter gross domestic product in the US showing contraction last week,” Cleveland notes (Jeffrey Cleveland, 03:04).
• Future Outlook: Cleveland emphasizes the importance of upcoming jobs data as a key indicator. Continued job growth and a rebound in consumer spending could stabilize markets (Jeffrey Cleveland, 03:34-04:23).

3. China’s Deflation Worries

Overview: Shifting focus globally, the report highlights China's battle with deflation, contrasting the persistent inflation challenges faced by the United States.

Key Points:

• Consumer Price Index (CPI) Drop: In February, China's CPI fell by 7.10%, signaling deflationary pressures (Sabri Benishore, 04:28).
• Economic Implications: Falling prices might seem beneficial but can lead to reduced corporate revenues, layoffs, and decreased consumer spending—a vicious cycle that policymakers aim to avoid.

Expert Insights:

• Market Behavior: At wholesale markets in Shanghai, vendors are reducing prices, but this behavior can undermine long-term economic stability. “If consumers get used to falling prices and wait till prices drop further, companies will get less revenue,” explains Jennifer Pack, Marketplace’s China correspondent (Jennifer Pak, 04:51-05:00).
• Government Measures: Premier Li Qiang has doubled subsidies to $41 billion for trading and upgrading goods, aiming to boost consumption. However, economists argue that more comprehensive measures are needed, such as preventing further declines in housing prices and strengthening the social safety net (Jennifer Pak, 05:00-05:50).

4. Massive Cryptocurrency Exchange Hack

Overview: One of the most significant segments of the episode covers a record-breaking cyberattack on the cryptocurrency exchange Bybit, resulting in the theft of $1.5 billion. The attack is attributed to the Lazarus Group, linked to North Korea.

Key Points:

• Scale of the Hack: Bybit suffered what is possibly the largest financial hack ever, with $1.5 billion stolen in seconds (Sabri Benishore, 07:39).
• Attribution to North Korea: Indicators suggest the Lazarus Group, known for funding North Korea's weapons programs through cyber theft, is responsible. “North Korea has made billions from hacks they use to fund their military missile programs,” Jeffrey Cleveland states (Jeffrey Cleveland, 08:25).

Technical Details:

• Method of Attack: Hackers infiltrated Bybit’s SafeWallet, manipulating the transfer addresses during a routine megatransfer of Ethereum. The redirection was executed seamlessly, leaving the company unable to stop the theft in real-time (Joe Tidy, 07:57-08:10).
• Aftermath and Response: Bybit has replenished its reserves to ensure customer funds remain safe and is actively pursuing the perpetrators. Crypto investigators from Elliptic are tracking the stolen funds through blockchain transactions, but the sophisticated layering techniques employed by the hackers complicate tracing efforts (Joe Tidy, 08:10-10:08).

Challenges in Addressing Cybercrime:

• International Enforcement: Despite international accusations against North Korean cybercriminals, apprehending them remains difficult unless they exit the country. “Unless they leave the country, the chances of them being arrested are very slim,” explains Joe Tidy (Joe Tidy, 09:07).

5. Consumer Confidence and Personal Finance

Overview: Towards the end of the episode, the report touches on declining consumer confidence and its implications for personal finance management.

Key Points:

• Consumer Sentiment: Consumer confidence has witnessed its sharpest monthly decline since 2021, reflecting growing financial anxieties among the populace (Janelia Espinal, 10:24).
• Financial Education: The segment promotes "Financially Inclined," a Marketplace podcast aimed at simplifying personal finance topics, helping listeners navigate uncertainties by enhancing their financial literacy.

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Conclusion: This episode of the Marketplace Morning Report provides a comprehensive examination of the economic challenges facing consumers and markets alike. From escalating credit card defaults and volatile markets influenced by international trade tensions to China's struggle with deflation and unprecedented cybercrime, the report underscores the intricate web of factors impacting the global and domestic economic landscape. Additionally, it emphasizes the importance of financial education in navigating these turbulent times.

Transcript

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[Sabri Benishore]

It's gotten harder for people to pay off their credit cards. From Marketplace, I'm Sabri Benishore in for David Brancaccio. Americans took on an additional $74 billion in credit card debt last year, according to WalletHub. The good news is that is actually a smaller increase than we saw in 2023. The bad news is credit card defaults are way up. Marketplace's Matt Levin has more.

[Matt Levin]

A household is considered in default on a credit card when they're over 180 days late on minimum payments. That's when collections typically kicks in. And in 2024, Americans defaulted on $59 billion in credit card debt, a 34% jump from 2023. Chip Lupo is an analyst with WalletHub.

[Jeffrey Cleveland]

Inflation is a huge factor because the cost of everything has gotten so high.

[Sabri Benishore]

More and more people are turning to credit cards for expenses.

[Matt Levin]

Higher interest rates are also making things worse, partly because of the Fed's rate hikes. Lupo says credit card APRs are averaging around 22 to 23% right now, higher than normal.

[Jeffrey Cleveland]

You wind up paying more in interest than your actual balance.

[Matt Levin]

High credit card balances are taking their toll on one demographic group in particular older adults. Indira Venkat is senior vice president of research at AARP.

[Sabri Benishore]

Nearly half of adults over the age of 50 with credit card debt are lacking the money to cover basic expenses.

[Matt Levin]

An AARP survey also found that more than a third of seniors over 75 are carrying credit card debt. I'm Matt Levin for Marketplace.

[Sabri Benishore]

Markets started off calm this morning but are now officially having another rough day, starting shortly after President Donald Trump announced he was doubling tariffs on Canadian steel and aluminum, already set to go into effect tomorrow. He said this was in response to Canadian tariffs that were in response to US Tariffs. That is what you call a trade war, folks. Joining us to talk about this is Jeffrey Cleveland. He's chief economist at Paden and Regal. Good morning.

[Jeffrey Cleveland]

Good morning, Sabri.

[Sabri Benishore]

The market reaction that we've seen so far that we saw Yesterday. Do you think it's over or do you think there's more in store?

[Jeffrey Cleveland]

It's possible there's more in store. I mean, we have a lot of uncertainty whether it's tariffs, government spending cuts, layoffs. I think investors are just very concerned about what the growth consequences of this policy mix might be.

[Sabri Benishore]

Yeah, I mean, is it all sort of fear around tariffs or is it the government layoffs or is it something else?

[Jeffrey Cleveland]

I think it's a combination of all that, plus some of the data that we've seen in recent weeks has been weaker than expected. So we had some concerns about jobs. We have seen some estimates for first quarter gross domestic product in the US Showing contraction last week. That's created this sense in markets and in the minds of investors that the economy is shrinking or on the verge of shrinking. And I think you see that reflected in things like equity markets.

[Sabri Benishore]

What data are we going to need to see to understand whether this reaction, these fears are founded or not?

[Jeffrey Cleveland]

Well, I think people need to take a deep breath and think about, you know, as recently as last summer, we had a, what I would call a bit of a growth scare where we had some weaker jobs numbers, some downward revisions to payrolls, and, you know, the Federal Reserve was concerned enough to cut the federal funds rate by half a percent. I think that was quickly forgotten in the fall because the data rebounded. And I think importantly, Sabri will be the jobs data. So if we continue to see job growth, that will be a very good sign. And also spending, we saw some weak consumer spending to start 2025, but as we get more data throughout the quarter, we could see spending rebounding. And I think that will provide some calm for markets.

[Sabri Benishore]

Jeffrey Cleveland, chief economist at Peyton and Regal, thank you so much.

[Jeffrey Cleveland]

Have a wonderful week.

[Sabri Benishore]

Here in the US the battle with inflation is still not quite over. Meanwhile, in China, they're having the opposite problem, deflation. China's consumer price index fell by 7.10of a percent in February. A cycle of falling prices might sound good, but it can actually snowball into a whole set of other problems. Marketplaces. China correspondent Jennifer Pack has more from Shanghai.

[Jennifer Pak]

At the cheap wholesale clothing market, haggling is a must here, but not now. This casual wear shop blasts a mini speaker. Price drop, price drop. It says vendors are slashing prices on their own. That's great for buyers, but if consumers get used to falling prices and wait till prices drop further, companies will get less revenue. They might lay people off and the newly jobless will not spend as much. It's a vicious cycle China's policymakers want to avoid. Last week in Beijing, Premier Li Qiang announced doubling subsidies to $41 billion for trading in and upgrading anything from cell phones to cars. The program boosted consumption last year briefly. Long term, economists say China's policymakers should keep housing prices from falling further strengthen the social safety net and boost incomes, something hard to do with ongoing trade tensions with the US In Shanghai, I'm Jennifer Pak for Marketplace.

[Jeffrey Cleveland]

Foreign.

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[Sabri Benishore]

Last month, hackers thought to be working for North Korea stole a record breaking $1.5 billion from crypto company Bybit. They've since cashed out about 300 million from that heist. The organization's known as the Lazarus Group. It's accused of a string of hacks to make money for North Korea's weapons program. The BBC's Joe Tidy has more. Are we live?

[Ben Zhao]

This is Ben Zhao, CEO and founder of the Bybit cryptocurrency exchange. He's about to make an announcement that every CEO dreads.

[Matt Levin]

About two hours ago, Bybit experienced a hack.

[Sabri Benishore]

As far as we know, this could be the largest hack in the history of our industry.

[Ben Zhao]

In fact, it's probably the biggest single theft in any industry ever. $1.5 billion billion dollars gone in seconds. And even in the early hours after the hack, fingers began immediately pointing in one direction. North Korea. The impoverished country has one of the most advanced cyber teams in the world. Dr. Beverly McCann from Darktrace says North Korea has made billions from hacks they.

[Jeffrey Cleveland]

Use it to fund their military missile programs.

[Ben Zhao]

But the Bybit heist dwarfs all previous financial hacks. So how was it pulled off? Like all crypto exchanges, Bybit has a float of crypto coins ready to be sold and swapped in so called hot wallets. When the hot wallets are running low, more crypto coins are taken out of huge reserve pots called cold wallets that are kept super secure and offline, therefore safe from hackers. But the cybercriminals targeted a company called SafeWallet that Bybit uses to transfer coins from its reserve cold wallets to to its hot wallets. Everything looked normal for Bybit as they set up the megatransfer of Ethereum coins to the usual place. But the hackers had secretly changed the address that the coins were being sent to. By the time they realized it was too late. Bybit insisted that no customers would lose money. They've now replenished their reserves. But the company is, in its words, waging war on the hackers. Crypto investigators Elliptic are experts at charting the movements of criminal crypto funds. Every transaction is published on a public blockchain. Dr. Tom Robinson and his team have enormous, ever changing graphs showing the web of transactions made by the hackers. And so we're seeing the funds split up and sent out and layered. And what they're really trying to do here is confuse the money trail, make it more difficult, or to slow down the tracing of these funds. For years now, the US and allies have accused the country of orchestrating cybercrime. Names and photos of alleged North Korean hackers have been added to a cyber most wanted list. But unless they leave the country, the chances of them being arrested are very slim.

[Sabri Benishore]

That's Joe Tidey there with our news partners at the BBC in New York. I'm Sabri Benishore with the Marketplace morning Report from 8pm American Public Media.

[Janelia Espinal]

Consumer confidence had its sharpest monthly decline since 2021, which means we're all in our feels about money. And while uncertainty is the only constant these days, it's also a great reason to get serious about understanding personal finance. I'm Janelia Espinal, host of Financially Inclined, a podcast from Marketplace that makes learning about money simple. Learn about practical skills like negotiating job offers, dealing with money in friendship and love, entrepreneurship and student loans. Get serious about your money and build a life you've always dreamed of. Listen to Financially Inclined wherever you get your podcasts.