December 1, 2008
-
News: Credit Card Liquidity Drying Up
It's not over yet. Our nation's credit card holders are facing further grim times. The credit card industry is planning substantial credit line cuts over the next 18 months. As much as $2 trillion in credit card accounts and spending limits is being taken away in order to cut industry risk. If consumer confidence was already bad, we should expect to see things to deteriorate even further.
How important are these steep changes on out troubled economy? Well, consumer confidence is one of the two key pillars that hold up a capitalistic economy. Of course, consumer confidence is largely based on the consumer's confidence in personal economic survival. That comes down to liquidity. Liquidity comes in different levels. The lowest levels are those requiring the greatest amount of effort and offering the lowest return, things like having one's house or car repo-ed and sold off for what the market will pay. The highest forms of liquidity are most easily cashed in with minimal loss, like paychecks and most credit cards. So, of course, job loss has the greatest effect on reducing liquidity with credit card availability coming in second. We've already got the job loss and now we're embarking on losing 45 percent in available resources from credit cards.
The ‘big-3' credit card issuers in this country are Citigroup Inc, Bank of America Corp and JP Morgan Chase & Co, in that order. Together, they represent about half of our nation's credit, in terms of the card industry. Along with the many other issuing banks forming the other half, these three are facing very difficult times and must find ways to reduce, both their overhead and their risk. One of the greatest threats is the unprecedented ratio of consumer debt against job loss (the two primary forms of liquidity). Right now we are experiencing the worst ever ratio of job loss coupled with credit card debt. For a more complete explanation of this portion of the ‘perfect economic storm', please refer to the article entitled: "Protect Credit Card Industry: Too little, too late.