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August 27, 2010

Survival Default

Wealth Shift is alive and well and living in America. 

According to Trans Union, average credit card debt is down to $4,951 from $5,719 a year ago while mortgage default is up 14.8% year over year.

The conclusion that Trans Union's Becker made was that people are "robbing Peter to pay Paul", paying down credit card debt while at the same time forgoing payments on their underwater mortgages.  Why?  They need the room on their cards to charge expenses of daily living.

But don't let the decline in average credit card balances fool you.  The decline is not entirely the result of people pulling themselves up by their bootstraps and getting frugal.  It is far more a result of banks cleaning up their balance sheets - writing off debts they will never collect and canceling high-risk accounts.

Banks have our Wealth Shifty number.  And the credit card reform laws are only serving to bolster their newfound resolve to slash poor credit.  If you can't service these kinds of debts profitably, you won't make the loans.  Mark my words:  The more people try to pressure the banks into bearing the burden of their wealth shifty ways, the more the banks are going to push back.

The Wealth Shifty are casting their nets and reaping few obvious rewards.  So, instead, along with cutting way back on their spending, they are getting craftier every day.

Stay tuned, the story is far from over.