Do you still beleive there is an American midle class or has that been replaced by the working poor using credit to live a middle class lifestyle? This is a ticking time bomb waiting to explode.
This past summer's subprime meltdown involved about $900 billion in now-suspect securitized debt, reckless lending, and consumers who buckled under the weight of loans they couldn't afford. Now another link in the consumer debt chain - credit cards - is starting to show signs of strain. And the fear that the $915 billion in U.S. credit card debt (an uncannily similar figure) may blow up has major financial institutions like Citigroup, American Express, and Bank of America strapping on their Kevlar vests.This is the result of trickle down economics. Much like only a trickle of water will eventually make you die of thirst, the voodoo economics of the Republican party have killed the American middle class.
Last month, as banks reported their worst quarterly results since 2001, concerns about rising credit card delinquencies began to make their way onto earnings announcements alongside mentions of subprime woes.
Dennis Moroney, an analyst at TowerGroup, expects credit card delinquencies will rise as consumers, who have until now used home-equity lines of credit to pay off their cards, start ratcheting up higher card debt. When housing prices were rising, it was easy for consumers to tap the escalating values of their homes to keep borrowing. With the home-equity spigot turned off, over-leveraged consumers may have trouble keeping up with payments.
The doomsday scenario would play out something like this: Just like CDOs and other asset-backed securities, credit card debt is sliced, diced, and sold off again as packages of securities. Rising delinquencies would hurt not only the banks involved but the securities backed by the credit card receivables. Those securities would decline in value as consumers defaulted, leading to bank losses as well as portfolio losses in the hedge funds, institutions, and pensions that own the securities. If the damage is widespread enough, it could wreak havoc on the economy much as the subprime crisis has done.