Sjeltur

The financial and economic crisis continues to create havoc. The credit card industry is the next victim. American Express reported a rise in delinquencies on payments, from 2.5% in the third quarter of 2007 to 4.1% in the third quarter of this year. The loans deemed uncollectable rose to 6.7% in that quarter, up from 3.6%. The credit card company announced a cut of 7,000 jobs to save $1.8 billion to offset mounting defaults, about 10% of the total workforce. Last week the Federal Reserve helped American Express to meet its short term funding needs.

A very alarming statistic is the explosion of credit card debt in general, a sign the American consumer is in financial distress. Credit card loans increased by $29.1 billion in the period September 2007 – July 2008. From August 2008 – mid-October 2008 it increased by $32.3 billion. This is a growth of 48.3% annualized. The credit card debt grew more in those ten weeks than it did in mentioned period of ten months… The increase in the last week before October 15 is just spectacular, $7.1 billion, or 98.4% annualized!

It is also worrying that McDonald’s is now the second biggest merchant-vendor for credit card use in the US. This suggests a growing number of American consumers need to use their credit card to buy relatively inexpensive products like fastfood, they are running out of cash.

The average credit card debt in the US is about $2,200. The total amount owed on credit cards is close to $1 trillion. Big banks have formed a rather unusual alliance with consumer advocates to put pressure on the government to allow up to 40% of credit card debt to be forgiven. This is a reversal of the situation we saw in recent years when the industry tried to make it harder for consumers to erase their debts in bankruptcy. Desperation sets in…