In the season 13 South Park episode Margaritaville, Kyle uses a Platinum American Express card with no spending limit to pay off everyone else's personal debt so they're free to spend again, thus reviving the economy (at great, great, great personal cost).

While South Park has not always necessarily portrayed realistic events, my question is what would happen if someone actually did this (assuming they could)? I can't imagine financial institutions would be too happy but what's to stop this actually happening if anything, and what would the consequences be for Kyle, besides being saddled with trillions in debt?

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    Theoretically it is possible but there is a catch. A bank can only lend you what it's asset balance dictates. The bank cannot lend over a margin, because then it would trigger red flags over it's balance sheet which will make the regulators to take action. In the current scenario, many banks will be hesitant to lend as much as possible. – DumbCoder Aug 24 '15 at 12:59
  • How is this a Personal Finance question? – JTP - Apologise to Monica Aug 24 '15 at 13:23
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    @Adam - welcome to Money.SE. I'd invite you to take the tour and see what's on topic. The focus is on Personal Finance, and while money is the star of one's finances, not every question will be on topic. Part of the issue is that the question bears no semblance to reality, i.e. you are literally asking a hypothetical (not always bad) but one that simply can't happen. – JTP - Apologise to Monica Aug 24 '15 at 14:33
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    Some American Express (and other) cards have no pre-set spending limit. That is not the same as no limit. As I understand it, as each transaction comes in, the debtor's situation is reevaluated to see if they can afford it. It wouldn't take very many balance transfers before Kyle got cut off. – stannius Aug 24 '15 at 15:24
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    The South Park creators could have been using this as an allegory to explain the Federal Reserve's "quantitative easing" policy and mechanism with accessible humor to the general public (as they have before with Scientology and Mormonism), perhaps with a Libertarian-ish political slant towards the concept of a fiat currency with a central bank (if you think it through, is there anything beyond political will that prevents the Fed from being a no-limit platinum Amex for the whole economy?). – user662852 Aug 24 '15 at 15:49

The problem would not only be that of Kyle but also that of American Express. When Kyle pays by credit card, American Express pays the bills out of their pockets on his behalf and then forwards the bill to Kyle. The issuer of a credit card takes the risk that the holder of the card won't pay the credit card bill.

In practice there are safeguards in place which prevent a company like AE to pay such huge sums in one day through an automated process. Credit card companies have sophisticated algorithms to determine unusual spending patterns and block any transactions which appear unusual. Also, after a few billions their bank will likely block them and prevent them from paying any more bills. But let's play along and pretend these safeguards wouldn't exist.

That means after Kyle's spending spree, American Express will be trillions in debt, with their main debitor being a 10 year old boy who won't ever be able to pay. Kyle will have to declare personal bankruptcy. There are various variants of bakruptcy in the US, but they basically all boil down to him paying everything he can pay (not much considering that he is 10) and then defaulting on his debt. Afterwards he is debt-free. That means the debt is now that of American Express.

American Express will not be able to pay that debt with their bank(s) either, so they will have to declare bankruptcy and default on their debt too. This domino effect passes the burden on to the banks which can not carry a trillion-level debt either.

A bank going bankrupt is a serious issue because it means they can not pay back any of the money in the saving accounts hold by companies or private people with them. So the problem would return to those people Kyle wanted to help in the first place.

Also, the collapse of one bank will often result in the collapse of further banks, resulting in a collapse spiral destroying the whole world-wide finance system. Nothing would be gained.

  • usually insured against loan defaults through That is wrong. Unless American express buys CDS it cannot be insured, so it is not by default. – DumbCoder Aug 24 '15 at 12:58
  • I see, interesting and informed answer, thank you. When you say their banks, I wasn't aware banks had banks! Going to go research that now. – leylandski Aug 24 '15 at 13:06
  • the collapse of one bank will often result in the collapse of further banks No it will not. It might affect(big losses), but doesn't necessarily happen. And one country bank defaults doesn't mean other country banks will also go down under. Remember Iceland/Ireland. – DumbCoder Aug 24 '15 at 13:15

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