The United States government is facing a debt crisis, but so are the American people. Unfortunately, many Americans have returned to their pre-recession norms: living life on the credit card. With rising interest rates in every part of the economy, this is going to hurt them down the road.
Is it starting to already?
Credit card delinquency rates are on the rise. According to several U.S. banks and credit card companies, credit card delinquency rates jumped for the second consecutive month in August, after somewhat declining for four straight months.
The numbers vary, but banks have placed the delinquency rate as high as four percent, which remains multi-point levels below the 2008-2009 financial crisis.
With millions of Americans falling behind on their bills, this could significantly impact lenders in the form of higher loan losses. But the industry and the Federal Reserve only have themselves to blame.
In recent years, subprime borrowers – those with low credit scores – are receiving $1,000 credit cards at levels unseen since the economic collapse. Here is what the New York Federal Reserve reported:
“Nearly half of all card closures in 2010 and 2011 belonged to borrowers with credit scores of 660 and below, although they comprise only 33 percent of card borrowers. Reversing the sharp net decline in the number of credit cards during 2008-10, in recent years, the level of new card issuance to this group has been strong and is now approaching pre-recession levels.”
The Fed rate hikes are already costing consumers roughly $2 billion in additional credit card interest. It’s only going to get worse moving forward.
The banks call it delinquency. I call it the wealth gap. Half the population now shares just 1% of U.S. wealth – down 70% over 20 years.