March 13, 2009
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News: Assess the Credit Card Threat Reasonably.
Before you accept the headline as fact, it's only reasonable to consider that some reporters break the rule by already having the outcome in mind before they write an article. One prime example is the latest publicity by prominent banking analyst, Meredith Whitney over doomsday economy inferences caused by credit card cutbacks. (Please refer to my recent article-assessment entitled: "Whitney Woes of Credit Card Crunch." for more insight.) To refresh, Ms. Whitney has been very vocal on TV and in major newspapers throughout the land. Sure, she's a prominent figure. Sure, she's confident enough to snub Warren Buffet to his face. But, before the whole nation bows to an inference on Ms. Whitney's statements on the credit card industry, let's consider the greater picture. My personal take on the whole thing is that Ms. Whitney is not saying that any threat is imminent but that, we all need to keep a watchful eye. On that point, she would be right.
Ms. Whitney points out that, at the onset, there was a major cutback on our nation's unused credit card spending limits. The initial rate was a $2 trillion cut over 2008. She also stated that another $2,7 trillion cutback was planned over the next year and a half (by mid 2010). It should have been explained, but was not, that these reductions were targeted at credit card holders who weren't using those amounts anyway. Two major ramifications could be taken from this.
The most likely is that most American credit card consumers will no longer be able to shop as they have because their credit has been taken away. That would be wrong. The credit that's being taken away is credit that has been untapped. In fact, when all's said and done and $4.7 trillion worth of credit has been taken away, ceteras parabus (if other conditions stayed the same), credit card consumers could, in fact, increase their spending (and debt) another $200 billion (nationally) above what they already have before they max out.
But, we all know, other things will not remain the same. One has already manifest in the fact that credit card consumers have already cut back on spending and not because of limits being reduced. Because they now understand it's foolish not to.
The other big change is that the credit card industry will always be avid about offering new accounts to the worthy, albeit perhaps, at higher interest. But if higher interest or lower FICO Scores are the rub, let's not be misled by the ‘apples and oranges' bate and switch innuendos. Credit card spending is not going anywhere.