"Paper or Plastic?" takes a whole new meaning

It was reported yesterday by the major banks and credit card companies that default rates are increasing. Again, what has TSM reiterated for 6 weeks now. This is important - as is all consumer data - because consumers = America's economy largely. Innovation, 'go green' and the free-market system are all great, but they're dead without the American consumer (at least until our economy rebalances itself to a point where we actually build, produce and sell things of value and not just services for a plush life).

That being said - I DONT advocate that consumer spend tons of $ or re-leverage themselves dangerously. I just point out how important the consumer is - so when we see the consumer is hurting, then it makes me give less credence to all these green shoots and optimism.

NOW FOR THE POINT -- credit cards hit a record high last month and its stated that current rates of default of 10% could translate into $70 billion for the banking and credit card industry. As a point of reference, American Express (which represents 25% of the industry) had its default rate go from 9.9% in April to 10.4% in May. BOA's (the largest US bank) hit 12.5%. Capital One is at 9.4% and Discover is at 8.9%. Consider that this will only get worse as unemployment continues and defaults continue to rise. The question is - how can a recovery take root if the consumer isn't stabilizing but getting worse?! How can banks be profitable if they can't make money on refi's or credit cards, and they still have those toxic assets?