Debt = Slavery. And credit-addicted, live-beyond-their-means Americans are about to find out that no, money doesn't grow on trees and yes, Congress tightened bankruptcy laws at a very interesting time.
Oh, this will end so ugly. So, so ugly.
Rising mortgage payments and tighter lending standards for refinancing amid the subprime credit crisis have dried up once-easy access to home equity loans for many middle-income borrowers -- so desperate borrowers are using credit cards to cover basics while trying to keep up with home payments.
"When credit conditions dry up, marginal borrowers turn to plastic," said Merrill Lynch North American Economist David Rosenberg. "We're seeing signs of that already."
In an October 5 research note, Rosenberg called rising credit- card delinquency rates as the "next skeleton in the closet."
It is one scary skeleton -- and a specter of bankruptcy.
The problem with using credit cards -- with their high interest rates -- to stave off default brought on by "reset" adjustable mortgage interest is that it merely postpones an inevitable crisis, said Gregary Brown, social policy director at Metropolitan Family Services in Chicago.
"Our biggest concern right now is that there are lot of people who will face a choice between bankruptcy or foreclosure," he said. "Either way, it's going to suck."