A considerable number of economists are predicting a credit meltdown over the next couple of years as a result of $900-plus billion worth of outstanding U.S. credit-card debt — much of it toxic. Credit cards have been the last line of payment defense for many consumers. Combine that factor with the negativity of the fact which suggest we still haven’t hit the post-recessionary peaks in credit-card losses, and you get the next financial meltdown.
From the NYPost:
[A]nalysts are predicting a slow economic recovery and rising unemployment will create a massive credit meltdown…that could whack banks with defaults that are twice the size of the TARP repayment.
“The banks have been through the market losses — now its time for them to go through the credit losses,” said Diane Vazza, head of global fixed income research at Standard & Poor’s.
Despite the banks’ increased capital ratios, the credit losses predicted by the S&P executives could lead them back for more federal assistance.
David Wyss, S&P’s chief economist said banks should brace for a plastic meltdown as credit-card losses track the unemployment figures almost exactly. “Credit-card losses, on average, are equal to the unemployment rate plus about 5 percent,” he said, noting his estimates that the nationwide jobless rate could rise as high as 12.5 percent by 2011.
“If one more thing goes wrong, say oil goes over $100 a barrel, or the banks have to deal with another big hit like the commercial real-estate market dropping substantially, unemployment could continue to rise through 2011,” Wyss said.
Credit card companies are expected to lose nearly $100 billion in credit card debt-collection in 2009.