How your neighbours' Xmas spending will hit YOUR wealth

One in every £10 spent on credit cards this Christmas won't ever be paid off, so Matthew Lynn claims in a fascinating article in Money Week magazine today.

He argues that banks are covering over the cost of these rising bad debts for now by raising credit card rates for all (at a time when the UK bank rate is at a record low of 0.5% and so card rates should have fallen).

But this can't last: 'Sooner or later, the banks are going to be drowning in a sea of unpaid loans,' says Lynn '... at some point, this bubble is going to burst.

'Many credit card lenders will have to withdraw from the market... the rest will have to curtail their lending insisting on better credit records... That will trigger a big hit for the British economy.'
You can see this happening everywhere around you. Even if you have been careful with your spending, you know someone who is splurging way beyond their means. In fact you probably know several people like that - remortgaging, running up credit cards or loans, and all to pay for stuff they really need: a new kitchen every three years or a new £20,000 4x4 car every other.

They are spending that £1 for your £9 that will never get repaid.

This is the slowburn-end of the financial crisis: The banks don't want to bring this to a head as they would have to admit to all the bad debts; Governments - especially those which have effectively nationalised bank debts - are equally keen to keep kicking the issue into the long grass.

In a decade or two, bankruptcies and IVAs may be all the rage with retirees.

But it will come to a head. And more banks will face ruin, taxpayers will foot the bill and economic growth will suffer.

As I've been saying on this blog for seven years now, this debt and demographically-induced bust was inevitable [see here, and here for starters]. And now we're entering a similar two-decade-long decline like the one that has blighted Japan [Good updates in The Economist on this last week].