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Think The $700 Billion Bailout Cannot Be Repaid? Try This On, Americans Have $900 Billion In Credit Card Debt

October 29, 2008 10:49 PM

business-sunset.jpgPeople are worried about the near trillion dollar bill that will be handed to U.S. taxpayers because they think it cannot possibly be repaid and will put our grandchildren in debt forever. Fair enough, but the government can create inflation and reduce the “real” size of this number and I believe that is exactly what they will do. Therefore, the number will never be truly repaid in today’s dollars.

A far more troubling problem, that i have long warned about, and possibly the next tidal wave to hit the market is credit card debt. Actually, it will more likely resemble a slowly rising flood than a tidal wave. But either way, it ends up being an ugly flood with serious consequences. U.S. consumers have a staggering $900 Billion dollars in credit card debt. Keep in mind that is accruiing at an interest rate of well over 10% while the federal government can borrow at 3% or less. So if you are concerned about the federal deficit, and believe it cannot possibly be repaid, you want to reconsider the true problems facing the country - consumer debt.

I have long mentioned that real incomes have been falling since 2000 and I believe that trend will continue. The economy had forged ahead on massive leverage and debt, for which we are now paying the severe price for. It was not built on anything real. It was borrowed time. Consumers financed the economy via their house that was used as an ATM machine and credit card debt. The housing fiasco has already come to bear. Next up - consumer credit.

There is no possible way, period, that this money will ever be repaid. Ever. It is not possible.  It is not inconceivable that consumers cannot even afford to repay the interest on this debt, let alone actually paying down the principal. You will begin to see this as an issue soon i believe. Banks and credit card companies are going to have to take huge losses on this debt - at some point.

The five largest companies that issue credit cards (they issue 90% of all credit cards) are Discover, Citi, Bank of America, Chase and Capital One. I would consider avoiding these companies like the plague. As we have seen, the balance sheets cannot be trusted as they refuse to own up to the problems until the ship is calling mayday, mayday. If you must be long this train wreck with the Dow approaching 10,000 I see no reason to buy these companies. There are thousands of other stocks that likely are financially better off, longer term, IMO.

Written by Tom@StockBlade.com · Filed Under General Investing/Trading Commentary 

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