The 02/08/2008 edition of Nightly Business Report said that “Credit card companies have begun telling customers their interest rates are going up sharply, even on balances already owed.”
This move, although self defeating to the credit card companies, could have a more damaging impact on our economy than the terrorist attack on 9/11. The impact may even be bigger than that of the bursting housing bubble.
If this actually increased the revenues of the banks, this would sharply curtail credit use within the consumer economy. In fact, there may be so many defaults on credit cards that the banks will only sink deeper into trouble with bad debt write-offs.
As consumers struggle to unwind their credit card debt, the value of recent government action to give out tax rebates will be completely negated. Much of the rebates will be used in attempts to pay down credit card debt.
I don’t have the information to calculate the size of the problem that the banks will be creating. I can only suspect that it will be sizable. If we are lucky, federal regulators and/or legislators will step in to prevent this disaster from occurring.