Credit Card Debt at Nearly $1 Trillion - Political Forum

Izzibeth · #1 (**permalink**) 03-03-2008, 12:42 PM

Quote:

Credit Card Debt a $915 Billion Disaster-in-Waiting for Banks

Think the estimated subprime debt load carried by the big international banks is big, at $1 trillion?

How about this: Americans now owe nearly as much – a record $915 billion – on their credit cards alone.

And defaults and delinquencies in the credit card sector are piling up – which means big banks are on the hook, again. More sand in the gears for the global economy.

Credit card companies wrote off 4.58 percent in payments between January and May, almost a third more than in the same period in 2006, according to Moody's Investors Service. As a result, lenders such as Citigroup, Bank of America, and American Express, among others already reeling from the subprime mortgage disaster, are being further weakened.

Not to mention the staggering U.S. economy, which is so dependent on a vigorous consumer credit sector to keep it healthy. Seventy-two percent of the U.S. economy rides on consumption alone.

Third quarter numbers for banks were the worst since 2001. First Citigroup took a 57 percent hit in earnings. The decline was attributed, in large part, to consumer-credit problems. Anticipating additional defaults, they stashed away $2.24 billion in loan-loss reserves.

Other major banks also took a beating and are also preparing for the expected credit card delinquencies and defaults.

American Express added 44 percent to its U.S. card division loss reserves. Bank of America, Capital One and Washington Mutual are all expecting at least another 20 percent in credit card losses over the next two to four quarters.

An increase in credit card balances and first-time cash advances were cited by Citi Chief Financial Officer Gary Crittenden as indicators of possible trouble to come. The change in loan losses was "inherent in the [Citigroup] portfolio but not yet visible in delinquencies," Crittenden told Fortune magazine.

An increase in bankruptcies is a major contributor to credit card defaults, according to Jay Eisbruck, managing director of Moody's Asset-Backed Finance Group.

Falling home prices and rising gasoline costs also add to bankruptcy woes. U.S. home prices fell 3.2 percent in the second quarter, the sharpest decline since 1987, according to Standard & Poor's.

As home prices fall, homeowners have a harder time getting cash by refinancing high-rate mortgages. The high cost of gas, often purchased with credit cards, doesn't help either.

On Monday, the national average price for a gallon of regular gasoline was $2.971, according to the U.S. Energy Department, up 10 cents from last week, and the highest since the peak summer travel period of August. A three-buck a gallon average is inevitable, say analysts.

Low- and middle-income workers who must drive to work have been hardest hit by the increases, further boosting delinquencies and defaults.

Fears are now rising that U.S. consumer credit card problems could ripple out into the global credit market, starting in Europe. Deutsche Bank, for example, is now "…in a heightened state of alert to monitor a potential domino effect," says the bank's U.S. analyst, Michael Mayo.

In the U.K., homeowners are reportedly using their credit cards for mortgage payments. Credit card interest typically runs much higher than mortgage rates, so reducing one debt by increasing another at a higher rate can be the first step on the road to default and eventual bankruptcy.

The U.K, usually 18 months ahead of the U.S. in its credit cycle, is perhaps a harbinger of things to come in the U.S. credit picture.

Credit card companies really are vultures. I am so glad that I only have one and it's not too high that I couldn't pay it off if I continue on my current savings trend.

mrnumbersman · #2 (**permalink**) 03-03-2008, 10:07 PM

What really makes this bad is the number of sub-prime payments were made using credit cards. It would take eternity to find out how much of it happened but it has been reported as happening.

By making money so easy through various lending and credit means, this is what we haved reaped. We have sown the wind and reaped the whirlwind. And, as the article states, it is only a matter of time before it comes time for payment.

Wheeldog · #3 (**permalink**) 03-04-2008, 02:33 AM

Quote:

Originally Posted by mrnumbersman

What really makes this bad is the number of sub-prime payments were made using credit cards. It would take eternity to find out how much of it happened but it has been reported as happening.

By making money so easy through various lending and credit means, this is what we haved reaped. We have sown the wind and reaped the whirlwind. And, as the article states, it is only a matter of time before it comes time for payment.

On a national level we have been on a spending spree for the past several years. Much of it has been made possible through easy credit. Credit cards have allowed people to spend well beyond their financial means. Credit companies issuing these cards marketed them like candy to children. As long as the economy was expanding most users were able to meet their payments. Now, however, the economic party is winding down, and holders are increasingly defaulting on their payments.

What we may be seeing is the collapse of a financial house of cards. One of the lessons taught in natural science is that everything is related. Virtually nothing happens in a vacuum. Record cost of oil, disintegration of the real estate market, meltdown of lending companies, falling value of the dollar, rumors of pending bank failures, etc. are not isolated events. They are pieces of a larger dynamic jigsaw. When they all come together it probably will not be a pretty picture.

presluc · #4 (**permalink**) 03-05-2008, 02:07 PM

I think I posted a thread on this subject before.
My question is all those times in the past 7 yrs that Americans were told that the economy is fine no problem,ect.
Did that have anything to do with the credit card debt?
I mean if you have a credit card and are told the economy is great you might think well I'll just charge this and pay it off later.
Oh I know there's the responsibility factor, but if you can't trust politicians? WELL? lol,lol,lol

Shiva_TD · #5 (**permalink**) 03-05-2008, 06:12 PM

Hell, that ain't nothin'. The US Congress has voted to create something like a $9 trillion debt for the American people!!!!

presluc · #6 (**permalink**) 03-06-2008, 12:42 PM

Perhaps the congress is just looking to the future, after all 45 million dollars a month going to Iraq and a hundred yrs {according to McCain} can be a lot of months.

mrnumbersman · #7 (**permalink**) 03-06-2008, 08:05 PM

Quote:

Originally Posted by Wheeldog

On a national level we have been on a spending spree for the past several years. Much of it has been made possible through easy credit. Credit cards have allowed people to spend well beyond their financial means. Credit companies issuing these cards marketed them like candy to children. As long as the economy was expanding most users were able to meet their payments. Now, however, the economic party is winding down, and holders are increasingly defaulting on their payments.

What we may be seeing is the collapse of a financial house of cards. One of the lessons taught in natural science is that everything is related. Virtually nothing happens in a vacuum. Record cost of oil, disintegration of the real estate market, meltdown of lending companies, falling value of the dollar, rumors of pending bank failures, etc. are not isolated events. They are pieces of a larger dynamic jigsaw. When they all come together it probably will not be a pretty picture.

I agree. It could get very ugly in the next year or two and we could be facing economic collapse on a scale we have not seen in our lifetime save for a few small minor Latin American countries. It is important to remember that when the US economy tanks, just about the entire world's economy will also tank. Let us just hope that we also won't have the food shortages that has often been associated with these economic collapses.

Wheeldog · #8 (**permalink**) 03-07-2008, 04:32 AM

Quote:

Originally Posted by mrnumbersman

I agree. It could get very ugly in the next year or two and we could be facing economic collapse on a scale we have not seen in our lifetime save for a few small minor Latin American countries. It is important to remember that when the US economy tanks, just about the entire world's economy will also tank. Let us just hope that we also won't have the food shortages that has often been associated with these economic collapses.

The stock market crash of 1929 was preceeded by a gradual build up of negative financial events over an extended period of time. When these pressures reached a critical mass, they set off economic avalanches sweeping away the wealth of investors and institutions and undermining the economic foundation of the nation. Intially, the change seemed gradual, and most folks figured things were OK. However, in 1929 a tipping point was reached, and it all fell apart with breath taking swiftness.

History may be repeating itself. The sequence of events and underlying causes differ, but the process is familiar. The past several years have been a modern version of the Roaring 20's that preceeded the Great Depression. We have been on an unsustainable spending spree living high on make believe money in the form of credit and inflated property values. In the process we developed an excessively consumptive lifestyle requiring enormous supplies of oil and other finite resources. Now, there are signs that this economic house of cards is teetering. Most people choose to ignore the warning signals preferring to believe that the party can go on forever.

If we are indeed at an economic tipping point, it could set off a financial event that could dwarf the Great Depression. Folks in the 1930s experienced extreme hardship. However, the country still had plenty of oil, open land, and other basic resources to rebuild the economy. The factories were there waiting to be reopened and fired up. Most people were experienced in growing food, repairing equipment and even making their own clothes. They lived in fairly compact communities and didn't need private cars for work or shopping. The Great Depression lasted about 10years and only ended with the start of WWII. It has been suggested the next major economic collapse might be called the Greater Depression.

Grez · #9 (**permalink**) 03-08-2008, 03:21 AM

Quote:

Originally Posted by Wheeldog

The stock market crash of 1929 was preceeded by a gradual build up of negative financial events over an extended period of time. When these pressures reached a critical mass, they set off economic avalanches sweeping away the wealth of investors and institutions and undermining the economic foundation of the nation. Intially, the change seemed gradual, and most folks figured things were OK. However, in 1929 a tipping point was reached, and it all fell apart with breath taking swiftness.

History may be repeating itself. The sequence of events and underlying causes differ, but the process is familiar. The past several years have been a modern version of the Roaring 20's that preceeded the Great Depression. We have been on an unsustainable spending spree living high on make believe money in the form of credit and inflated property values. In the process we developed an excessively consumptive lifestyle requiring enormous supplies of oil and other finite resources. Now, there are signs that this economic house of cards is teetering. Most people choose to ignore the warning signals preferring to believe that the party can go on forever.

If we are indeed at an economic tipping point, it could set off a financial event that could dwarf the Great Depression. Folks in the 1930s experienced extreme hardship. However, the country still had plenty of oil, open land, and other basic resources to rebuild the economy. The factories were there waiting to be reopened and fired up. Most people were experienced in growing food, repairing equipment and even making their own clothes. They lived in fairly compact communities and didn't need private cars for work or shopping. The Great Depression lasted about 10years and only ended with the start of WWII. It has been suggested the next major economic collapse might be called the Greater Depression.

These are all good points and it really makes you think if we could recover as quickly as we did back then (may not have seemed quick then, but this one could be more devastating.) The debt that we have been acquiring as a whole is very disturbing and is the cause. The lenders are the culprits for allowing all these loans to be so easily attainable and should be the ones to suffer first, as it is ultimately their fault for allowing it. But it trickles down, first to the stock market and continues to trickle down to everyone. We are in a scary situation in my opinion, especially as we see the dollar drop to all time lows, housing markets at very signifcant lows, oil at all time highs, govt spending out of control. We could very well be headed to a Greater Depression if we don't watch it and start taking responsiblity as a whole. It would be a worldwide phenomenom eventually.

pedex · #10 (**permalink**) 03-08-2008, 10:31 AM

subprime is just a small part of what's going on, in fact a very small part

financial deregulation is a bigger part and one of the root causes, Glass-Steagall being being repealed for example opened the door to rampant over leveraging and fraudulent financial practices

the other issue in play right now is the accounting laws got changed a few years ago with most firms now forced to use the "mark to market model" which works great when things are growing, it fails miserably if things contract and your over leveraged

hedge funds, banks, retirement funds, etc etc are ALL way way over leveraged and placed all their hopes on never ending growth which is not only unrealistic but plain stupid, in the process they let themselves get to the point where when the margin calls come they can't pay up...........

add to this the fact that the US model of finance right now is unstable, untenable, and just does not work long term, it can't......our fundamentals stink, and we're talking world record size stink, the US is the world's biggest DEBTOR nation, we produce little and most of that is feed stock and materials which are turned into goods by other countries then shipped back to us

add to that our fiat currency which in the history of the world has never ever turned out well, every single time a country has used a fiat currency and abused it, it has failed spectacularly

in the news we keep seeing its a "liquidity" problem, no the reality of it is its a insolvency problem, we used to have stringent checks and balances in place to curb excessive leverage and risk taking, they no longer exist, and we have a govt that looks the other way and even helps monopolies take advantage of the situation........this is like hiring the proverbial fox to guard the hen house, duh, what do we expect?

all the classic signs and events are right in front of our faces:
debt climbing out of control
precious metals climbing in price while currency plummets
unemployment rising
bankruptcies climbing
financial institutions that should have solid balance sheets don't
the govt stepping in and promoting MORE BS financial tricks instead of fixing things(big clue right there)

recovery? doubt it, not until about 20-30% of current housing value goes bye bye, and about 60-70% of the hallucinated wealth held by wall street gets marked to market at fire sale prices bringing us back to late 90's to year 2000 levels, and maybe more and all that still doesn't even put a dent in the over valued economy of ours, there will be more unwinding after that.......you don't get away with dropping the prime rate below the real inflation rate for years on end and not pay the price for that at some point

and while all this goes on, the life blood of our way of life will continue to get more expensive, oil will not be getting appreciably cheaper ever again, the supply side can't pull it off

simple solutions to all this, I don't expect to see it happen though, the powers that be can get away easier by continuing the pump and dump they've been doing then just leave and take their game elsewhere when the US is finally toast, the sign to look for is when other countries abandon the dollar en masse and another reserve currency comes into play, once the US loses that its game over