Tax Reform in This Election Year: It's Not Likely
Walmart's New Health Food Push: Is It Too Hard to Swallow?Getting a bank card with a big line of credit used to be as easy as pie. Make an application and get 25% of your annual income as a line. Then spend, spend, spend. Who cares that the annual interest rate might be 18%? Use that home equity loan to pay off the card balance. It is still debt, but your home value is rising.
It looks like that whole cycle is over and that banks are going to sharply cut credit card availability to consumers. That, of course, will hurt retail sales and the nation's GDP.
According to Reuters, "The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said."
Credit card caps could go so low that the overall access to capital using them may drop 45%.
The prediction shows the extent to which banks are now at odds with almost every other business in America. Financial firms have to keep capital to prevent raising money if they face more losses. Retailers and other business which rely on consumers to borrow need the banks to extend money to consumers to keep their buying power up.
Consumer credit provided by banks drove American economic expansion over the last five years. It is ironic that they are helping to kill it.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
12-01-2008 @ 11:09AM
BHarrison said...
Well, it all revolves around "balance" . . . balancing credit indebtedness with the ability to pay.
George Bush and Congress tacitly pushed the credit card indebtedness in order to finance their previous phony economic boom . . . it made them look good; but there was a price to be paid eventually.
While none of us care for excessive government regulations, the current economic debacle demonstrates the prudent need for adequate regulations of the FIs to ensure fiscal integrity of our economy.
To those who vehemently fight against all government regulations, the current economic melt down and debacle unequivocally demonstrates the necessity of "reasonable minimal regualtion" to curb the excesses of predatory capitalism.
12-01-2008 @ 11:21AM
Dan Barnett said...
The other, possibly unintended, consequence will be on the FICA scores which factor in the ratio of debt available to debt used. So that, if an unused credit limit of $25,000 is cut to $5,000 there will be a negative impact on the FICA score. Thus do we all become greater credit risks & thus pay more for credit.