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Some observers, including analyst Meredith Whitney , have been expecting that a surge in credit-card defaults will deal the banks their next big problem. As unemployment rises, defaults also rise - and the U.S. unemployment rate has surged to 8.5 per cent, as of March, and is widely expected to hit double digits.

The Economist's Free Exchange blog figured that default rates will actually be higher than unemployment levels would indicate, for three reasons. Higher interest rates mean that banks are charging higher minimum payments. Credit limits are lower, which means that it is now harder to get a new credit card and transfer the balance. And, most importantly, people have higher debt levels these days than in the past.

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More


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