Employment numbers are looking much better, but, oddly, Americans seem to be getting worse at repaying their debt obligations.
As noted by Newsmax, a report from Moody’s found that banks have seen a notable increase in charge-offs of credit card debt over the two most recent fiscal quarters. As a matter of fact, the jump in charge-offs is the biggest since 2009.
According to experts, the seemingly-curious juxtaposition of good employment figures with higher rates of non-performing credit card debt is attributable to a loosening of underwriting standards that’s come about precisely because employment numbers are so much better. Alex Morrell of Business Insider writes that “American consumers haven’t fallen on hard times so much as banks have started to loosen their standards and issue credit more aggressively.”
In a statement, Warren Kornfeld of Moody’s said, “Although card standards were extremely tight in the years following the financial crisis, if underwriting then loosened materially, as the rise in charge-offs suggests, asset quality could continue to deteriorate rapidly going forward, especially in the event of a recession.”
In the years immediately following the “Great Recession,” lending standards on behalf of a number of financial products, notably home mortgages, were significantly tightened. It’s no secret that banks suffered mightily as a result of the inability to loan money to anyone except the most qualified applicants. Indeed, the economic engine of the entire country slowed to a near-halt as access to credit was greatly restricted during that period.
However, as Kornfeld suggests, if credit once again becomes liberally available, as it was in the years leading up to the 2008 collapse, a whole, new financial disaster could be in store for the nation.
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