The Next Bubble Is on The Way: Credit Card Debt

Why Are We All Complicit in Our Own Economic Servitude?

Let me try a few words out on you: "Charge It:," "Swipe It" and "Priceless." You know exactly what I am talking about. We all have credit and debit cards. We all use them, and many of us keep our lives going because of them.

That is, until the bill becomes due.

The sad truth is that we are all complicit in our own economic servitude even if, at bottom, it's not our fault because we live in a consumption society, and don't feel we could live without them.

While many eyes are focusing on the housing meltdown and its hugely negative effect on an economy clearly moving into recession, few are paying attention to the next bubble expected to burst: credit cards. You would never know it by watching those slick VISA card ads on the Olympic TV broadcasts.

Combined with the subprime losses, such a credit card nightmare has the potential, experts say, of bringing down the entire financial system and global economy.

You and your credit card have become key players in the highly unstable financial crunch. Mortgage lender cupidity and bank credit card greed wedded to financial institution deregulation supported by both political parties, have been made manifestly worse by Bush administration support-the-rich policies. It has brought us to a brink not seen since just before the Great Depression.

While campaigning in Edinburg, Texas, in February, Barack Obama met with students at the University of Texas-Pan American. "Just be careful about those credit cards, all right? Don't eat out as much," he said. After the foreclosure crisis, he warned, "the credit cards are next in line."

The coupling of home equity debt and credit card debt has gone hand in glove for years. The homeowners at risk can no longer use their homes as ATM machines, thanks to their prior re-financings and equity loans, often used in the past to pay off their credit cards. Indeed, homeowners cashed out $1.2 trillion from their home equity from 2002 to 2007 to pay down credit card debts and to cover other costs of living, according to the public policy research organization Demos.

To compound the problem, fewer people are paying their credit card bills on time. And, to flip the old paradigm, more are using high-interest credit card cash to pay at least part of their mortgages instead of the other way around.

Younger people are being crushed by this debt burden as college students and new consumers. Emma Johnson of MSN Money reports that "Generation Y" is broke

" "The democratization of credit has really generated a competitive spending culture, and plastic has allowed for material goods not had in the previous generation," says Bob Manning, author of "Credit Card Nation. "Most of us grew up in a home with just one or two bathrooms for the whole family, he points out; today, new homes usually have at least one bathroom per bedroom.

"That change has happened so fast," Manning says.

"This generation feels that somehow or another they're going to figure out some technological advancement that's going to get them out of their financial troubles and outsmart the market," says Manning, who served as adviser to the documentary "In Debt We Trust." The documentary paints a picture of national financial crisis stemming from the personal-debt burden.

Happily, this issue is finally being addressed by Congress and the Federal Reserve Bank. When asked for comments, the public overloaded the Fed's website as the New York Times commented:

When the Federal Reserve asked for comments on its proposed rules on abusive credit card practices, an astonishing 56,000 poured in. Most were from outraged consumers. They told of interest rates skyrocketing when they paid an unrelated bill late. They complained of unwarranted late fees and pushed-up due dates. One Pennsylvania customer fumed: "I'm fed up with credit card company tricks that drive us deeper in debt."

This anguished deluge should send a clear message to leaders in Washington. The Federal Reserve should swiftly adopt its proposed rules against unfair or deceptive credit card practices. But the real burden to curb these abuses falls on Congress

.

This discontent is being organized to press Congress to act by groups like the Consumer Federation of America and the Center for Responsible Lending

Congress is listening:

WASHINGTON (Reuters) - Legislation aimed at curbing credit card billing practices that surprise borrowers with unexpected interest rate increases and fees was approved on Thursday by a U.S. House of Representatives committee.

The bill approved by Financial Services Committee mirrors Federal Reserve proposals that would effectively end double-cycle billing -- in which card companies reach back to prior billing cycles to help calculate the interest charged in the current cycle.

These reforms are a start but much more needs to be done because its not just billing practices that is at issue -- its high interest changes, deceptive marketing, and arbitrary rules. On top of that, there are other loans that need scrutiny including payday lenders and student loans. And of course our own addiction to shop until we drop,

Also, let us not forget that our credit card companies have been colonizing markets throughout the world. As the NY Times explained in a series on debt, "As the American blessing of credit cards became widespread, so did the American curse of debt."

Bear in mind the experience of another addicting industry -- tobacco. As they came under restraints in the US, they escalated their poison pushing worldwide.

Debt is a global issue and has to be treated as such.

Just as groups like The Neighborhood Assistance Corporation of America (NACA) provide help to homeowners in distress we need a major effort to help the victims of credit cards -- with practical assistance and political demands for regulation and relief.

News Dissector Danny Schechter made the film "IN DEBT WE TRUST. His new book PLUNDER: Investigating Our Economic Calamity is out later this month from Cosimo. Comments to [e-mail]

Comments

[patianneb]

One of the things currently sending me right up the wall is Discover's television commercial that opens:

"We are a nation of consumers"
"There's nothing wrong with that ...."

WHAT?

THERE IS EVERYTHING IN THE WORLD WRONG WITH THAT!

rant done.

[RedneckDem]

I hope y'all dont think I'm a schlep for saying this, but this is what happened to me.

Year 2000, got dotcommed, as in we lost our funding in the vacuum created by other dotcoms failures. Lost a good paying job and millions in Class A stock and options. Found another job at about 1/3 the pay and relied on CC's while I looked for better job. No good paying jobs and a second low paying job barely helped. I called CC's to let them know the situation and asked if I could pay 1/4 payments (with credit suspended). They said no and I figured all was ok in the meantime. The CC companies decided that I was a risk and started heaping on fees so they could write off (taxwise) the max amount possible since odds were that I would default (whether I was or not). Somehow other CC's became involved in the same practice. After they wrote off the money, they sold to vulture companies who would harass you constantly. Continued...

[RedneckDem]

I forgot to mention that I also called one of those credit repair companies who lumped all of my cards together and then quoted me a higher monthly payment than I was currently paying!
I will never, ever pay money to one of these vulture companies. If the CC company dishonored my original honorable intentions and then maxed out their write off, why should I be obligated to pay anything to a vulture co? These companies are all sharks and will try to strip you to the bone, even when you try to do the right thing. I felt bad originally, but once they did what they did I feel zero remorse. It's also unsecured debt so their harassment is mostly lip service and once you ask them to either take you to court or stop the harassment, the calls and letters will stop.

This will be a bubble, but it wont impact consumers anywhere near what the housing bubble is. Now the companies that have all of this defaulted, unsecured debt, will be in for some really bad times...

Besides, the next bubble will be the Military Industrial Complex.

[joebhed]

Danny,

I paraphrase here, from a 1995($) speech by Muriel Mabley.

"If we divide the total money of the nation by the total population, there is about $21,500 for each person.
Unfortunately, there is about $58,000 of debt for every person.

Apply your $21,500 and $37,500 of debt would remain.

Your options are forfeiture of assets or borrow more money.
Can you borrow yourself out of debt? You cannot!

The established mechanism of money creation and uncreation is itself the cause of ever increasing debt.

Working harder or longer will not correct it.

Having a job for everyone will not correct it.

Neither raising nor lowering wages will correct it.

Neither greater nor lesser utilization of natural resources will correct it.

Neither increasing nor decreasing exports will correct it.

Neither more nor less spending will correct it.

Neither full employment nor less than full employment will correct it.

Changing interest rates will not correct it.

Changing tax rates will not correct it.

The only thing that will correct it is the one thing that is a sacrosanct non-subject in media, education, politics, religion, and even social discourse. The only thing that will correct it is to strip banks of their power to create their money as debt at interest and adopt a method of money creation whereby the U. S. Treasury creates our money as CREDIT!

This issue is the key issue in the financial future of our nation and world!"

Nuff said !

[joebhed]

That should be Mobley.

I apologize for bringing Moms into these bizpage discussions.

[jcorrington]

Congress is listening???? plezzzzzzzzzzzzzzzzz

[fairandjust]

It is time to stop the abuse of the Credit Card industry. In order to increase their profits (lost by mortgage lender abuse) - they are punishing even responsible credit card users.

Write to your Congressperson - and tell them to support Rep. Carolyn Maloney's "Credit Cardholders" Bill of Rights Act of 2008" (H.R. 5244)

It will come up for a vote soon - before the election - so write or call your Congress rep now!!!!

[Sundialsvc4]

When you read any of the ancient books ... Talmud, Q'Oran, Bible ... you will find that they consistently talk more about money than almost any other subject they contain, including their particular version of "salvation." That's because money has more (negative) effect on people than anything else. It also typifies and abstracts "man's inhumanity to man."

One of the most reprehensible crimes was "usury." The charging of excessive interest rates. Not too long ago, all 50 states had strict laws against this practice. One by one, at the behest of banks, all were repealed. The usury began, and regulators at all levels turned a blind eye.

The practice is truly ancient ... we have records of it from the 6th century. And we likewise have ample evidence of its effects.

Ours is but the latest example: when encouraged (or forced) to do so, people did run up debts ... that they cannot and will not repay. Yet nowhere do the banks appear interested to do the obvious thing: to re-negotiate those debts, to reduce the interest rates and forgive the capricious fees, in hope of getting something rather than nothing for their money. So they will get nothing... and they don't care.

Why? Because they've already sold the debt as a "security," and eventually "Uncle Sugar" will bail everyone out. Ahem.

[kaski]

I highly recommend reading a book, "The Web of Debt" by Ellen Hodgson Brown. Study and learn or make yourselves sheep.

"Make yourselves sheep and the wolves will eat you." Ben Franklin

[WorkingClass]

"Combined with the subprime losses, such a credit card nightmare has the potential, experts say, of bringing down the entire financial system and global economy".

If the entire financial system and global economy were "brought down", what would that look like? What does it mean? Should I be afraid? Anybody?

[joebhed]

Naaahhh !

[Henry]

Joe,
You'd prefer the Zimbabwe comparison more?

[joebhed]

This is to Henry - to preserve the margin.

Are you replying to my TIC "Naaahh."?
Or, my above post of the Mobley speech?

My "Naaaahh" should be interpreted as, HELL YES, BE VERY AFRAID. Get ye to a credit union and hope for the best.

I don't necessarily agree with Danny that the credit card portion of the financial bubble is a determining factor in the coming crisis.

The Option-ARM/ALT-A and Commercial Real Estate fiascoes are worrisome.
The whole house of cards is in danger of crumbling down.

Mentioning Zimbabwe in monetary discussions is akin to raising Hitler in any discussion of economic nationalism.

So, if in reply to Ms Mobley's commentary on money and debt, then:
"Balderdash!".

Monetary reform is the number one need in this country.

We have incredibly, phenomenally, unprecedented huge debts, both public and private.
I figure we taxpayers and consumers owe about $50 TRILLION to the "holders".

ALL the money to be created in the future by that FED system to repay those debts, come into existence as debts.

THAT IS THE PROBLEM.

You can address Ms. Mobley's posting.
Yes, I wholeheartedly agree that she and the Chicago School economists that presented the Chicago Plan to FDR are absolutely right.

Government-issue, debt-free "credits" are the solution to the DEBT problem created by the private bankers.

Let's get on with that.

Did I misinterpret here?

Respectfully.

[Henry]

The financial system is "not" going down. Money is only an abstraction, it's all a vast array of accounting entries on ledgers.
Think for a second about the money and banking system of Iraq. We invade, plunder the banking ownership, institute an new money. And the provisional government then moves to set up a new central bank with banks to sprout on the specific authority of the "government". The point is that the central bank allows Brit and USA banks in, either formally or informally, and the future bloodstream of the country runs on the western bank model and ownership. (either directly or by proxy).
The cental banks of Europe (Germany) and Japan are both models of the Federal Reserve System. (I think you can see the idea here)

[Cranbot]

I don't eat out, I don't by junk, I don't even buy new clothes. I have to rely on my credit cards because my salary (ies) from 2 jobs don't cover the increase in fuel oil for my house along with the unexpected car repairs etc. So not all credit use is frivolous.

But I have been hit by changing due dates, erroneous late fees (I pay on line and once was told it posted 16 minutes late at 12:15pm - didn't know the bank day ended at noon)

They've got to stop this nonsense or there will be a lot of people walking away from their debt. I don't intend to, but if they won't even work with me when I call customer service (I was told I am not eligible to speak to a credit counselor and I have never even been more than 3 days late with a payment) I may have to.

[Chillinout]

Danny,

One thing you might want to consider is staying away from absolute statements like this:

"We all have credit and debit cards."

That statement is not true at all. Though I do have a debit card I have no credit cards and my friends that are farther to left than I don't have either of these.

[NoSillyName]

And no "bill comes due" when using a debit card, as Schechter erroneously implied by grouping both kinds of cards together.

[peoplepower1776]

Great post. Amazing what banks will do to keep you in debt. Met some clown at a party who works for one of the major credit card companies.

He dreams up incentives to make you charge small amounts (for insurance, cheap calculators) that add up. If you don't pay your bill in full each month, you pay interest on it.

He worships the check scam: The bank sends you check for $60. You cash it, but it's a high-interest loan or your enrollment in some costly "membership." Says people fall for it. Yes, the bank gets sued, but it's too profitable to stop.

Also, I had a card with a "friendly" bank who hit me with a Sunday due date. I paid the bill online with my checking account at the same bank. Received the next bill and found I'd been hit with a late fee.

Called bank. Was told, "We're a bank. We don't do business on Sunday."

Asked, "Then why did you give me a Sunday due date?"

Received terse speech about how I should not pay bills at the last minute. Was informed my interest rate would be hiked.

Asked to speak to supervisor. Was "accidentally" disconnected.

I called again and got a kinder rep who did cancel my late fee and canceled rate increase.

But I probably wasted 25 minutes of my life doing it. I suspect the banks hope we're all just too busy to make that kind of investment.

[WorkingClass]

Soon the credit companies will get what they deserve. Nothing.

[joebhed]

You got off easy.
They'll fix that somehow.
Guarantee of 45 minutes next time.