Your Minimum Credit Card Payment is Going Up

There is a very underreported story that is bound to have a major under-the-radar effect on the US economy. The Toledo Blade sticks it in their business section today:

Shoppers might be in for a rude awakening Sunday when all credit-card companies are expected to have raised their minimum monthly payment.

Some credit-card companies have already raised their minimum payments, as part of the U.S. Treasury Department's effort to try to keep people from sliding further into debt each month.

The higher minimum payments will reduce interest expenses because balances will be paid down faster, which in turn will stop cardholders with large balances from paying just the minimum and find their principal balances still rise.

"This is going to be a good thing in the long run," said Gail Hillebrand, senior attorney in the West Coast office of the nonprofit Consumers Union. "If you owe $10,000 in debt, you'll be able to pay that off in 14 years versus 41 years."

Which is great, but in the short run, people up to their eyeballs in debt will have their main bill, their credit card statement, doubled. The real answer to stopping consumer debt is for banks to not give out credit cards like they're samples at Hickory Farms. But banks rely on those with scattershot credit histories to run up huge debts on their plastic and be indebted to them for life. The $10,000 example above is only true if you stop adding money to the card. That is simply not reality for people who have made mistakes and gotten into a never-ending cycle of debt.

The obvious effect on the economy turns on the fact that the nation's retailers practically rely on the debt treadmill to keep their annual growth humming along from year to year. They need belt tightening like they need the plague. But something as simple as doubling monthly minimums could send this entire house of cards economy tumbling. Every actor in this economy requires racking up huge debts to satisfy corporate boards who demand perpetual growth. It's not realistic, and it ends up hurting those at the lowest of the economic ladder. But this doubling is the ultimate blowback: if the lowest-income members of society stop buying, their aggregate buying power will stagnate growth and slow the economy. The boomerang effect of this throughout all sectors will be troubling.

Add this to the news that short-term interest rates rose above long-term rates, a curiosity known as "interest rate inversion" that normally presages bad economic times.

What worried some investors and traders Tuesday was a relatively rare occurrence in the bond market: The yield, or interest rate, on the bellwether 10-year Treasury note declined to a level that equaled or was slightly below yields on shorter-term Treasury securities.

Normally, longer-term bonds pay more than shorter-term issues to compensate investors for the risk of tying up their money for an extended period.

When long- and short-term interest rates converge, it often is a sign that bond investors believe the economy will slow — so they're locking in long-term yields in anticipation that rates overall soon will level off or even head lower.

"We should be worried" about the economy, said Michael Cheah, who manages $2 billion in bond assets at AIG SunAmerica Asset Management in Jersey City, N.J.

Sounds like it. The "strong economy" of the last few years was always strong for little more than the investor class anyway. Wages were flat and prices were volatile. If the investors are now sufficiently worried we're in for it.