As if the housing crisis wasn't enough, the recently completed stress tests revealed potential problems the cumulative credit card debt holds in store for the economy:
The bank stress test results, released Thursday, suggested that the nation’s 19 biggest banks could expect nearly $82.4 billion in credit card losses by the end of 2010 under what federal regulators called a “worst-case” economic situation.
But if unemployment breaches 10 percent, as many economists predict, the rate of uncollectible balances at some banks could far exceed that level. At American Express and Capitol One Financial, around 20 percent of the credit card balances are expected to go bad over this year and next, according to stress test results. At Bank of America, Citigroup and JPMorgan Chase, about 23 percent of card loans are expected to sour.
Even the government’s grim projections may vastly understate the size of the banks’ credit card troubles. According to estimates by Oliver Wyman, a management consulting firm, card losses at the nation’s biggest banks could reach $141.5 billion by 2010 if the regulators’ loss rate was applied to their entire credit card business. It could top $186 billion for the entire credit card industry.
It has always appeared to me peculiar that we measure economic growth by including sales placed in credit, not paid for outright. Downward adjustments for GDP in the past few years is apparently in the works. The credit card industry has suddenly become a bi-partisan punching bag.
