According to Businessweek , the amount of our national credit card debt is $950 billion… and a significant amount of it is going to go bad.
Innovest believes that credit-card issuers will take a $41 billion hit from bad debt this year and another $96 billion hit in 2009.
With a $365 billion dollar market for securities backed by credit cards, this means that the losses this year and next will have to be passed through the investment market. About 70% of all credit card debt is sold to big investors…making more losses for pension funds, hedge funds, and others. And people thought it was going to be over by next year: I don’t think so.
In fact, based off what I’ve read in the Wall Street Journal, there seems to be about a 20 year cycle between an up market and a down market. Another words, for 20 or so years, the market will go up, then it will go down and commodities and other investments will rise, with short ups and downs inbetween.
The credit card debt market collapse is just one more concussion for the U.S. economy. The bright spot is that this should make people pay more attention to the subject of money, and increase their financial awareness. And because the business market is cyclical, things will bounce back.
My Recommendations
- If you’re digging a hole, stop digging.
- Cut back where you can, and build a cash reserve if you have not done so.
- Run in the opposite direction of the herd.
In the future, if you have invested your time in gaining financial education , you will be able to act on great investment opportunities that will let you enjoy a greater peace of mind.
Happy learning!
{ 2 comments… read them below or add one }
The credit card issuers have already been pro-actively taking risk measure.
These includes measures such as reduction on card credit limit as much as 50%, increase APR(interest rates) and freezing balance transfers facility.
If you max out on your credit card, it’ll hurt your credit rating when the credit limit cut hitting you. it’s advisable to make sure your spend only 50% of your card limit(30% is better).
The best way o use credit card at the moment is treat it like a charge card, pay in full every month and do not try to use the money you don’t have.
Good observations. What’s even scarier is that credit card debt is being securitized and sold off just like the mortgage-backed securities. I saw a good article about this at http://www.financialspeculation.com.
“The securitized debt backed by credit card receivables is a $915 billion industry. Increased defaults could unravel the whole game, just as delinquencies in the housing market brought down the $900 billion in mortgaged-backed securities.”
http://www.financialspeculation.com/index.php/archives/38-the-coming-credit-card-debt-meltdown
The authors, Jose Roncal and Jose Abbo have also just written a book called The Big Gamble with savvy information about spotting and avoiding financial bubbles before it’s too late. Looks like Donald Trump has endorsed it, so it’s got some good stuff.