December 1, 2008
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News: Industry Cutting CC Liquidity Almost in Half
As the world economy continues its global implosion, we have to wonder where it'll end. Looks like a brave new world coming. So it is, with the credit card industry as well. The largest credit card lenders are planning a $2 trillion cutback over the next 18 months. That would amount to a 45 percent reduction in credit card lending. Although these are long-term projections by today's standards, the plan is to cut back on consumer's credit card spending. Talks right now among the top three players; Citigroup Inc., Bank of America Corp, and JP Morgan Chase & Co. are about reducing available credit to both cardholders and would-be cardholders.
These three banks alone, account for over half of our country's total credit card loans. This move is expected to spark even more unrest in an already-volatile investor world where the DOW can't seem to find the right maneuver to escape its tailspin. The threat of lowered consumer confidence is telegraphing to the other nations of the world, as well. With the job market already devastated, an drastic decline in credit card liquidity is certain to have far-reaching world-wide consequences. Coupled with the mortgage industry doing the same thing, such a liquidity reduction could move the world closer to 1939 conditions where credit wasn't there to smooth the wrinkles.
Meanwhile, the credit card industry's main concerns are dealing with upcoming regulatory changes and stabilizing their own wobbly stance by reducing risk. Their concern is perfectly legitimate in view of the bleak unemployment crises and alarming increases in loan defaults. Job losses are increasing by about 50 percent every year while defaults on loans are increasing at about the same rate (46 percent). Not only is this an unprecedented combination, but, it's not the only one. Perhaps even more ominous is the fact that our consumers are not even setting as close to zero as they were back in 1939. They're way in the negative.
According to a recent CardTrack.com survey (55,000-sample set), our consumers are laden in $14.4 trillion worth of credit card debt. On average, they owe 39 percent more than their disposable annual incomes. They owe twice as much debt than in 1994 and seven times as much debt than in 1982 in relative terms when the job market was also bad. This is also unprecedented and we can't seem to break the fall.