November 19, 2008
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News: Unemployment is Responsible for CC Crunch.
The experts have linked close ties of the unemployment crisis and the healthcare crisis to the credit card crisis. It shouldn't take rocket science to figure it out though. For the past eight years, our nation has experienced an unprecedented loss of good paying jobs, coming off from almost unprecedented good job growth experience just a few years before. Paying the bills was just an inconvenience before 2000. But, for the next eight years, many families would face situations they had never faced before. Credit cards had always been around and were a very convenient exchange for paying bills. Most people realized that finance charges were a waste and would keep their credit card debt low for this reason.
But, as paychecks dwindled and eventually away altogether, these people had to decide between food, shelter, health, holiday shopping and credit card debt. No-brainer, right? Before the economic crash of the 2000 election, credit cards were harder to acquire and much less prolific. After the 2000 crash, the Fed was forced to drop interest rates all the way to zero percent in an effort to restore the economy. That effort never was very successful but a spinoff was that easy lending was made available to all. It took little effort to secure zero-interest credit cards and to continue acquiring new zero-interest accounts for the next eight years. Within a short time, easy credit became almost ubiquitous throughout our land.
Recently, experts have revisited the last two major unemployment crises our country has experienced and studied the relationship of these hard times and credit card debt. The first took place in 1982. It was found that, although debt increased, the ratio was still only 14 percent of what it is today. The latest similar unemployment crisis happened in 1994. Things had gotten worse, but were still only half as bad as they are today. So, it can be seen that extreme wage hardship does increase personal debt ratios. The ease of easy credit, coupled with the reductions in American wages seem to account for the more extreme credit crises we are face today. The credit crisis is so extreme today that we have no model that we can compare it to.