Huge Upswing in Credit Card Borrowing

by Christopher Peterson

New fed numbers are out showing Americans sucked down 6.9 billion dollars in new credit card debt, increasing outstanding consumer credit to $2.52 trillion during the month of January. This increase was double the $3.7 billion increase in the previous month of December--despite holiday sales.

This seems like a very ominous development to me. One suspects that this increase in borrowing is causally related to credit tightening in mortgage and home equity lending, and also that consumers facing foreclosure are turning to credit cards to stave off financial collapes. Distressed debtors that are shifting their living expenses into credit card borrowing are going to face high default interest rates and could be setting themselves up for a harder fall.

I hope the credit card lenders have their models figured out. As financial refugees from the mortgage market flee into the waiting arms of credit card lenders, it seems like there is the potential for subprime securitization problems to echo into credit card receivables. January's increase in credit card borrowing makes me wonder if the normally sophisticated credit card lenders' underwriting may finally come up short. Just a tip to all those Norwegian villagers, hedge fund managers, and investment bankers hoping to not look like Bear Sterns: Post-bubble vintage credit card recievable backed securities are a sucker bet.

Check out Patrick Deneen's interesting blog post for more thoughts.