Is credit card crisis next?

Credit card debt may be the next bubble to burst although the problem will not be as big as the sub-prime mortgage meltdown. The debt is also smaller than the adjustable rate mortgages that are due to reset in coming years.

However, a credit card crisis would impact companies that haven't been so directly impacted by the mortgage mess. As with mortgages, credit card debt has been packaged as sold to investors. It was a way for banks to reduce risk.

Despite interest rate cuts, credit card interest rates and penalties have skyrocketed recently. Part of this is to cover increasing credit card default rates and part to raise cash in a tight credit market. The average US household now owes $10,678 in credit card debt, up 29% from 2000.

NEWS.com.au

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Sky News

PM's Credit Card Concern Sky News, UK - 2 hours ago Gordon Brown says the Government is concerned about rising rates of interest on credit cards. Will Brown let slip his tax-cutting plans? ... UPDATE: UK To Set Out Plans To Monitor Bank Lending To SMEs EasyBourse.com

Comment: US govt continues to throw money into meltdown fix

There are those who say its like trying to smother a fire with bales of kindling, but the administration again shoveled money into the financial furnace.

The latest plan by Treasury Secretary Hank Paulson is to directly inject money into faltering banks by buying shares with money from the $850 billion bailout package. The purpose is clear. They want to make money quickly available for credit purposes.

But what about the bad mortgages? Again, the government is trying to solve one debt problem by introducing more debt.

And anytime large amounts of money are injected rapidly into the system, we can expect inflation.

Max Keiser, the controversial American financial activist who appears mainly in overseas media, believes that the next debt meltdown will come in the credit card industry. Inflation will cause many people who survive day-to-day to prioritize their expenses.

Water, food, housing, heating bills will be high on the priority list. Credit card bills will be relatively low on that list. After all, defaulting or becoming irregular on credit card debt at the most means losing the credit card and some harassment by collection agencies. You can survive all that of course.

If credit card debt gets hurt, institutions in the credit card business, like Bank of America, will be hurt as well. Basically inflation will just spread the damage putting more businesses in the bailout mode.

Consumers will tighten up spending at least until they see inflation settling, so the overall economy will slow.

Interestingly, the government no longer provides stats for M3, the overall money supply, probably because it fears the numbers would curb support for its easy money policy.

One website, shadowstats.com, has estimated these and other statistics that have been impacted by changes in government economic information collection and reporting. Their chart shows the estimated sharp rise in money supply arising from the flood of corporate welfare being spent by the government since official M3 statistics ended.

Money Supply

Charts of M1,M2 & M3 Levels