Credit Card Bubble Bursts?

Black Swan

What will happen to the US political scene if the historic trillion dollars in credit card debt in the USA bursts in 2009 or 2010 like the housing bubble or the investment bank bubble did in 2008? Will it affect the mid-term elections in 2010? What about the next presidential in 2012? Will the old quote "It's the economy stupid!" once again foretell election outcomes for the Democratic party in power vs the competing party?*

What are your predictions? Is there in fact a Credit Card Bubble that may burst? If so, will the Obama administration and the Democratic controlled two houses of Congress be able to mitigate the effects of yet another trillion in debt by regulating and pulling out the federal credit card for more bailout monies (and more bailout bank parties with rock bands, and golden multi-million dollar parachutes for rewarding bank executive failure), or will the Bubble also burst the Democrats during the next elections?

What's your best guess?






*I am struggling trying to remember the name of the major party that competed with the Democrats in the 2008 presidentials... They had some candidate that raised cain? Maybe if they had clear leadership and a positive, proactive, and compelling platform I'd remember? All I can remember are all the "no" votes since Obama took office. Let's see, are they called The Party of No?

Manic Moran

Not convinced that the credit bubble can burst in the same maner. Unlike the housing crisis which was a reflection of the credit available in tangible assets, the credit system itself seems to have few syptoms as long as people still have the money to pay their debts.

NTM

Black Swan

Manic Moran wrote: »

Not convinced that the credit bubble can burst in the same maner. Unlike the housing crisis which was a reflection of the credit available in tangible assets, the credit system itself seems to have few syptoms as long as people still have the money to pay their debts.

Certainly the financial specifics are different, but can US Americans just keep charging, and charging without getting themselves into a situation where many cannot pay the debt, given other financial problems they suffer from?

People are floating their debt from one credit card company to the next using the transfer of balance checks sent to them by the banks. Debt is thereby accumulating with added fees and compounding interest rates over time. Can this go on forever? I know some people that have max'd out on their credit card limits, and that's really scary considering how high it is! :eek:

I've noticed an increase of advertising on the telly by credit card debt resolution firms, as well as bankruptcy legal firms that mention credit card debt as a factor.

Although different, I can remember reading about the Dot Com Bubble investors that kept proclaiming that a new age had come to investment markets, as if there was no end in sight, then POOF! Same for the two-digit rise in housing values up until late 2007, as if they could continue to increase in (inflated) value forever. Then POOF, housing values crashed, with many defaulting on their mortgages having more debt than the house was worth.

Read that the credit card debt default ratio is approaching 10 percent, and could climb higher as recently unemployed people without cash whip out their cards for food, clothing, petrol, and other necessities. And if you don't pay off your credit card debt monthly, many card companies are increasing interest rates from 12 to 21 percent. The credit card debt in the States has consequently reached an historic high of a trillion dollars recently, and continues to climb. Is there no limit to how much credit card debt a US American can carry, huh? When will it go POOF?

B!ue dresses in white toga with sign, marching back-and-forth proclaiming "The end is near! The end is near!" while all her friends just nod their heads sadly as if B!ue has lost her mind.;)

Manic Moran

Blue_Lagoon wrote: »

but can US Americans just keep charging, and charging without getting themselves into a situation where many cannot pay the debt, given other financial problems they suffer from?

They can, and it's not unusual. They've always been able to do that. There was some recent legislation a while back requiring that the minimum payments due are such that if paid, the debt will decrease faster than interest accrues, but that doesn't stop people still making purchases.

Credit cards are not secured by collaterol of a certain value, unlike mortgages.

NTM

JohnMc1

Blue_Lagoon wrote: »

What will happen to the US political scene if the historic trillion dollars in credit card debt in the USA bursts in 2009 or 2010 like the housing bubble or the investment bank bubble did in 2008?

People think its bad now wait until the Credit Card crash. It will make our current economic disaster look good.

Black Swan

JohnMc1 wrote: »

People think its bad now wait until the Credit Card crash. It will make our current economic disaster look good.

Indeed! (JohnMc1 and Bad B!ue agree on something? Yikes!)

JohnMc1

Blue_Lagoon wrote: »

Indeed! (JohnMc1 and Bad B!ue agree on something? Yikes!)

Careful now. I might send you those George W and Newt portraits yet.

Everybody [regardless of political affiliation] should be able to realize this is a disaster waiting to happen and with our current reccession, Cap and Trade passing a Credit Card implosion can/will cripple the US economy.

LostinKildare

I read that last week Chase announced that effective August 1 they are raising the minimum monthly payment on credit card balances from 2% to 5%. A 150% hike. So if you're just keeping your head above water with for example a $500 monthly payment, you'll somehow have to come up with $1250 a month.

Brace yourselves for the fallout from a massive national default.

Chase, the 2nd-largest US bank, is the largest issuer of Visa cards and the 2nd-largest issuer of Mastercards. Its parent company JP Morgan is the 3rd-largest credit card issuer by sales volume.

Both bailout recipients, btw.

JohnMc1

LostinKildare wrote: »

I read that last week Chase announced that effective August 1 they are raising the minimum monthly payment on credit card balances from 2% to 5%. A 150% hike. So if you're just keeping your head above water with for example a $500 monthly payment, you'll somehow have to come up with $1250 a month.

Brace yourselves for the fallout from a massive national default.

Chase, the 2nd-largest US bank, is the largest issuer of Visa cards and the 2nd-largest issuer of Mastercards. Its parent company JP Morgan is the 3rd-largest credit card issuer by sales volume.

Both bailout recipients, btw.

Sadly by this time next year those rates look small.

banquo

Oh no! Run!

/runs from idle credit card

Sand

I read that last week Chase announced that effective August 1 they are raising the minimum monthly payment on credit card balances from 2% to 5%. A 150% hike. So if you're just keeping your head above water with for example a $500 monthly payment, you'll somehow have to come up with $1250 a month.

How in the name of christ does someone end up with a minimum credit card installment of 500 dollars per month? At 2% interest?

Were people buying houses on their credit cards or something?

LostinKildare

Sand wrote: »

How in the name of christ does someone end up with a minimum credit card installment of 500 dollars per month? At 2% interest?

Were people buying houses on their credit cards or something?

No, sorry that wasn't clear, the interest wasn't 2%, it's the minimum payment that was 2%. I just took $500 as an example -- that would be the minimum payment on credit card debt of $25,000; with the rise to 5%, the payment would be $1250.

Yes, $25,000 is some serious cc debt, but not unheard of at all. Chase made a huge push a couple of years ago to get people to consolidate their debts with balance transfer offers of low interest rates for the life of the loan. So people wisely(?) transferred their debts onto their Chase card at fixed rates as low as 2.99% and 4.99% -- not hard to imagine a total debt then of $25,000 or more.

As long as they've paid the minimum payment on time every month, they've been able to hold onto those rates. But with this change in terms jacking up monthly payment amounts, customers will default, and Chase can raise the interest rates to whatever it is they're charging now -- 20%ish?

Angry posts from Chase customers -- 155 pages worth -- here: http://www.consumeraffairs.com/credit_cards/chase_credit_cards.html.

This will affect 850,000 accounts. It'll have a serious knock-on effect on the economy.