A Look At The 'What If' Scenarios
Economists make their living from "what if" scenarios, and one of the biggest "what if's" right now has to do with the effect of an increase in inflation, and with it, interest rates.
Credit union ALM analysis is primarily focused on investment portfolios. But rising rates could present a significant problem in different form: the membership. WesCorp's Dwight Johnston is noting that even in a rock-bottom interest rate environment, bankruptcies, mortgage delinquencies and foreclosures have been at record highs, and that 43% of Amiercan families spend more than they earn each year. (The average family is carrying $18,654 in debt, excluding mortgages, up 41% since 1998.)
"Twenty percent of consumer debt is adjustable (rate-priced)," pointed out Johnston. "The consumer may be fine right now as long as nothing else happens, but a rate increase could lead to a recession next year."
Johnston said that credit unions in California and the Northeastern U.S. should also pay attention to home valuations, which have been sky high in both areas. "If home prices decline in your area and equity borrowing increases, you better get worried," he cautioned.