Credit card defaults indicative of new crisis?

Confidence in the economy is currently high, confirmed by strong macroeconomic data from the United States and the Eurozone. Despite this, more and more analysts are warning of a new crisis, as certain indicators suggest that the economy will soon begin a downward cycle.

One of those analysts is Albert Edwards of Société Générale, who in his latest report draws attention to a Sharp rise of the number of overdue credit card debts. Credit card debt is becoming a growing problem, especially at small U.S. banks, where defaults have doubled from less than 4% to nearly 8% in a short period of time. The last times that the number of payment problems increased so sharply was in 2008 and in 2000, not entirely coincidentally these were moments that were accompanied by an economic crisis.

Sharp increase in problematic credit card debt (Chart via Zero Hedge)

Analysts warn of new crisis

Albert Edwards is known as an analyst who is usually less positive about the economy than the average analyst, but he is certainly not the only one who warns of a new crisis. Steen Jakobsen of Saxo Bank Warned earlier this week for the relatively weak financial position of U.S. households and the government. He said the following about that in an interview with CNBC:

"All the data we have seen in recent weeks actually shows that the consumer is already at his maximum. We're seeing that in credit card debt as well, so I think consumers are done spending money. I think we overestimated what the tax measures will do for the U.S. economy. On the dollar side, we see the dollar weakening due to the double deficit - fiscal and balance of payments. So I think the valuations are based on a goldilocks scenario, whereas frankly we're closer to a Frankenstein scenario."

Jakobsen acknowledges that certain economic indicators are still positive, but that investors' expectations are far too far ahead of the music. He also believes that central banks have contributed to this with their accommodative monetary policy.

Albert Edwards warns investors that the independence of the U.S. central bank could be at risk if another major crisis erupts. In doing so, he suggests that the Federal Reserve will take more extreme measures in the next crisis that violate the principle of independence.