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US $18 billion credit card debt spree sparks fears (CNBC / FT)


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http://www.cnbc.com/2016/07/31/us-economy-news-18-billion-credit-card-debt-spree-sparks-fears.html

 

U.S. banks have ramped up lending to consumers through credit cards and overdrafts at the fastest pace since 2007, triggering concerns that they are taking on too much risk in a slowing economy.
The industry has piled on about $18 billion of card loans and other types of revolving credit within just three months, as consumers borrow more and banks battle for customers with air miles, cashback deals and other offers. . . .
Recently disclosed second-quarter results showed that credit card loans increased 10 per cent year-on-year at Wells Fargo, 12 per cent at Citigroup and 16 per cent at U.S. Bank, according to Deutsche Bank research. Expansion was an especially aggressive 26 per cent at SunTrust, the $200 billion Atlanta-based lender.
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Is anyone surprised? The cost of money for banks is crazy cheap. They need to chase yield because they cannot make any money on government bonds with Treasury rates so low.

 

It only makes sense that they would encourage more borrowing by consumers.

That is exactly what the Federal Reserve is trying to encourage by artificially forcing interest rates so low.

 

The real concern is what the Federal Reserve, European Central Bank and Japan's Central Bank will do during the next recession.

Monetary policy has no ammo left with 0% or negative interest rates.

 

The only thing they have left to goose the economy is Helicopter Money. And that is batsh$t crazy for them to do.

Edited by RocketGoBoom
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They just want their three comma hats.

 

But seriously, in just three months seems a big excessive. Hopefully this doesn't result in a huge wave of new membership here in the future.

 

The scariest part of the article is the sense that the banks are ultimately completely fine with it. We've learned nothing.

Basically the same thing can be said for the automotive industry according to my industry sources.

Referring to auto lending, correct?

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Not surprising at all.

 

It's been over 7 years since the last credit crunch, (so delinquencies are aging off many borrower's credit reports who live beyond their financial means).

 

Lenders need to lend, (so time has rinsed, and it's time to repeat past mistakes).

Edited by Chris58
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Not surprising at all.

 

It's been over 7 years since the last credit crunch, (so delinquencies are aging off many borrower's credit reports who live beyond their financial means).

 

Lenders need to lend, (so time has rinsed, and it's time to repeat past mistakes).

It's come up in conversation lately in some of my circle of friends. salamanders bragging about how their reports are finally becoming clean. AND talking about all the stuff they want to finance that they can't afford. They are chomping at the bit to go back to living a 100k lifestyle on a 50k salary.

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Not surprising at all.

 

It's been over 7 years since the last credit crunch, (so delinquencies are aging off many borrower's credit reports who live beyond their financial means).

 

Lenders need to lend, (so time has rinsed, and it's time to repeat past mistakes).

It's come up in conversation lately in some of my circle of friends. salamanders bragging about how their reports are finally becoming clean. AND talking about all the stuff they want to finance that they can't afford. They are chomping at the bit to go back to living a 100k lifestyle on a 50k salary.

 

Some people will never learn.......even though the BK I filed was back in 2002, it's still very fresh in my mind............................ I finance a car (0%) and a house (4.37%) but they are both modest compared to what a lot of people have ........................... I am still very much cash & carry and PIF.... I've worked too hard for those 800 scores and I don't want to backslide. But you have to want to have that peace of mind.

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Credit cards gaining steam (again)

 

[T]he number of credit-card accounts in the U.S. is rising quickly. And based on current growth rates, the total number will soon be back to prerecession levels. . . .

 

"When people get comfortable and complacent with the cost of borrowing money they overspend." . . .

 

Because originations are a key driver of growth for the industry, card issuers have upped the ante with better rewards and sign-up bonuses to attract new customers, according to Ezra Becker, a vice president of research and consulting at the credit monitoring firm TransUnion. . . .

 

Although credit-card delinquency rates of 90 or more days remain low, they increased to 1.47 percent in the first quarter of 2016, the first increase since 2013. That's mostly a result of cards issued to nonprime credit-risk borrowers, according to TransUnion's Becker.

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Here's my take on these financial news articles about consumer credit.

 

- Get while the getting is good.

 

- If you want new credit lines or CLIs, go for it in the near future.

 

- If you are revolving debt (even at 0%), develop a plan to pay it off in the near future. (A good idea anyway.)

 

This is what the beginning of the final stretch of the credit cycle looks like. My guess is that this phase will end within a couple of years, and credit will tighten again after that.

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It's a good thing to remain cautious, but on the whole I greet the news that consumer lending is returning to pre-recession levels as largely good news. Until consumer confidence is restored and people begin purchasing big ticket items at a pre-recession pace, economic expansion will remain weak.

 

Are there consumers who haven't learned anything from the events over the last decade? No doubt. But there are a lot of good values out there, and I don't think that someone who takes on reasonble debt at current low rate opportunities is necessarily setting themselves up for downfall. (And, yeah, IMHO I think people have wisened up considerably.)

 

Like it or not, consumer borrowing is a key element of the economy and can be engaged in without throwing caution to the wind ... or did D Ramsey gain a foothold here I was unaware of?

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I wonder how the total US credit card revolving debt stats are reported.

 

I suspect it is the same as what the CRAs and FICO see -- statement balances, regardless of whether people PIF or revolve debt.

 

Does anyone know the answer?

 

 

(The official data series are available from the St. Louis Fed's FRED resource.)

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I wonder how the total US credit card revolving debt stats are reported.

 

I suspect it is the same as what the CRAs and FICO see -- statement balances, regardless of whether people PIF or revolve debt.

 

Does anyone know the answer?

 

 

(The official data series are available from the St. Louis Fed's FRED resource.)

 

I've seen stats on the average balance people revolve. It's much larger than the average balance posted each month for people that PIF. About 40% of people PIF. My guess is that about 80% of the reported CC debit is revolving debt.

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I could be wrong - but let's not ignore history, lest we repeat it.

 

Didn't our government bail out the big banks because they were "too big to fail"? Wells Fargo, Chase, Citi, Bank of America - those four can do whatever they want. If they get insolvent, they'll just stick their hands out - and our insolvent government will just print more money and bail them out.

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Not all the banks wanted or needed the bail out but with it forced on them they also had to do some of the governments bidding and buy up some of the smaller failed banks. But I am not going into all that now.

 

I see this as a good thing for our economy and if the borrowers haven't learned any personal responsibility by now they never will. Just because you get a CC offer in the mail you don't need to apply for it or use it if you can't pay it back.

Edited by tiggerlgh
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