Credit Card Acid Rain?

While the US (and the world) is groggily trying to get back on its feet after the mortgage sucker punch, the knockout punch seems to be flying in! The toxic sub prime home mortgage debt of USD 900 B may be overwhelmed by an acid rain of credit card debt pouring in. The US has more than a Trillion USD of credit card receivables that is largely securitized through asset backed securities.
In its G-19 Consumer Credit report last year, the Federal Reserve estimated the nation's credit card debt at about $3,000 for every man, woman and child in the United States. Other studies indicate the average credit card debt borne by a card holder is close to $10,000.
And why do I believe the credit card debt wallop will be more painful? Simple, cards have not only provided issuers with stupendous ROI but also sustained consumer spending across the US economy. In fact, the online shopping boom wouldn't have been possible without plastic credit. APRs on credit cards have held firm even in a declining federal interest rate regime. The sheer profitability of credit card lending meant the banks could continue to take higher 'risk charge' on their portfolios and still continue to grow. Sub prime card APR rates go as high as 42% in the US. The customers who used their credit cards to pay mortgage bills will now show up as defaulting on a higher cost debt.
The consumer addiction to 'shop on minimum monthly payments' may be coming to roost soon. The signs are already showing up. American Express' US Card services (top end card issuer) made a loss provision of USD 1.1 Billion (US business only) in 4Q 2007; leaving it with a small change net operating profit of USD 7 million for US cards business. If the premium segment is needing added provisions - imagine the effect on the mass / subprime segments who live off their credit cards!
A mortgage like meltdown in the credit cards industry will have wider implications - retailers, restaurants, travel agencies......
The US post office will be the most affected - card issuers sent out 5.3 billion mailers to prospective customers in 2007 - this is twice the combined population of India and China receiving card offers. All the temptations of great offers, balance transfers, 0% 'tart' rates may now show up on issuer balance sheets.
US card issuers have so far engaged in outsourcing credit card processes and back office services. Now looks like they have to find a way to outsource card debt!