JLP from All Financial Matters made a great insight about the next financial bubble we face in the United States.
Much like sub prime mortgages are packaged together and sold to large financial institutions to earn from the interest of the borrowers, credit card debt is also packaged together and sold off to larger financial institutions to reap the benefits of the hefty interest rates that borrowers pay. if you think that unscrupulous lending practices were taking place in the sub prime mortgage sector, you don’t even want to know about the credit card lenders. Credit card lenders send applications to ANYONE and EVERYONE. Dead people, dogs, people with zero money to their name, children, and any other social security number they can get their hands on. Credit card companies have spent the last thirty years literally trying to financially drive this country into the ground. We’ve seen the statistics of $600 billion dollars of credit card debt in this country, and it is no joke. This is a bubble waiting to happen.
JLP calls it a “standard of living” bubble, and he is exactly right. The “buy now, pay later” theme of consumer goods such as furniture, electronics, clothing, and other accessories are bought every day on credit. Credit cards have taken away one of the most fundamental principles of personal finance which is, “buy what you can afford” and replaced it with “buy it if you can afford to make the payment”. No longer do we evaluate if we can afford a large ticket item based on the price. We evaluate it based on the monthly payment, and that is horrible. The credit card bubble is slowly creeping up on us, but no one is talking about it. If the government does anything to hinder credit card companies and the packaged debt that floats back and forth from one large financial institution to another, we could see another slump in the economy. The only difference is that this would be a good slump.
You know that I am a strong advocate against the use of credit cards. I think they do more harm than they do good for individuals and the country as a whole. They offer an artificial boost in the economy, and they drain the bank accounts of Americans. Take the time to think about what the unethical practices of mortgage brokers and banks did to this country with the real estate bubble. Then, think about what credit card companies could do to this country.