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Credit Card Crunch

CrunchIf you think the mortgage crisis is serious, you better know this. Something worse is coming: the credit card crunch — something used by virtually every single one of us and plays a critical role in our commerce.

With currently $5 trillion dollars of credit card line outstanding in the U.S., some predict there’ll be over a 57% contraction by the end of 2010. That means, if you have a $1000 credit line limit, you’ll end up having only $430. But as credit card companies lower consumer credit limits during touch economic times, something bad happens. You get into a revolving credit card crunch — a downward spiral that makes people harder and harder to pay back. (click here for a graphic illustration on what that means)

When people start defaulting in their credit card bills (esp. those who never pay off their bills and keep sinking deeper and deeper into debt), imagine what will happen to the banks. The 52″ LCD HDTV has been bought, the vacation has been taken, the wine and food has been enjoyed (and processed down the intestinal organs) . . . but no one is there to pay the bills . . . except the banks with minuses in front of their numbers and many trailing zeros. Yeah, banks are in deep shit, if you would excuse me . . . real deep shit excreted by their borrowers.

So, is that a good thing or bad thing? It’s pretty bad when financial systems continue to collapse. And when people start evading collection companies by moving around and changing names, that creates a lot of social instability too.

But on the other hand, I always see the real antidote to the current financial crisis not as continually encouraging people to spend, but to repent of our ways of consumeristic spending, and start spending less and saving more. Our credit card debt is way out of proportion against our real wages. So maybe this is a good thing. It’s like mama’s way of smacking our buttocks and limiting our teenage monthly allowance when we are naughty. It’s discipline time.

For more, read this: Reflections on the Current Economic Crisis: Sub-prime: Sub-normal or Sub-human? Part 1, Part 2
or watch this: Confessions of a Shopaholic (My wife dragged me to watch this with her on Valentine’s Day, but hey, it’s not that bad. It got me thinking about credit card debt and the whole issue of consumerism.)

Posted in Business, Culture, Finance, Posts in English.

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