According to Oppenheimer & Co banking analyst Meredith Whitney, the U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months leading to sharp declines in consumer spending, prominent said.
The credit card is the second key source of consumer liquidity, the first being jobs. “In other words, we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent.”
Mortgages and credit cards are now dominated by five players who are all pulling back liquidity, making reductions in consumer liquidity seem unavoidable, she said.
“…We are now beginning to see evidence of broad-based declines in overall consumer liquidity.”
She also said credit lines to consumers through home equity and credit cards had been cut back from the second-quarter levels.
“Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view,” she said
Though problematic for many; especially in the short term; because it has/will remove a fair share of the excess borrowing capability from those millions of Americans ill-suited to prudently handle it; I see this development as a net long-term positive.
From a UK perspective this important form of credit / cash flow restriction is very negative, liquidity is already very restricted.
Agree with Steve M. For most, getting their credit limit cut is necessary since they could not pay back the money in the first place. The increased limits in the past were in fantasy land anyway, the reduction is simple restoration of sanity.
Long term, a positive move, but very long term.
Over the next few years, it’s going to be a huge drag on the economy.
Let’s face it, the economy is based on spending and spending is largely done on credit, less credit, less spending, less spending less product being produced, less spending, less travel and service being used, and loss of more jobs.
So let’s not jump up and down on this news.
The stock market lost all of its gains from last week, today.
The economy is officially in recession.
Credit continues to dry up.
No good news here
Tend to agree Mike, but we have been increasing consumption and decreasing production for a long, long time now. Its should surprise no one this caught up with us. The only real surprise is that it has not come sooner. Still, if one is a buyer in stocks, its certainly a better time to buy than it was a year ago. Multiples on all the indexes show that to be an objective truth. There are opportunities in any market. Gold took a dip today so if you are a long term pessimist you should buy gold in bullion or an ETF.
I don’t think I want to classify myself as a “long term pessimist”.
It’s been said and is worth repeating. Americans have been relying far too much on credit. Most would be amazed at the number of adults with no income, no signifciant work history, and no assets being lured into easy credit … and becoming quickly over-extended.
Credit is an excellent opportunity in the hands of responsible people. But there are literally millions of people with max’d out credit cards living on them for food, rent, gas, etc.
Then buy Index stocks cheap now Mike!
Yes, Menius.
Capitalism runs on credit. Those who think it wise to buy the bottom of this massive credit unwind will be crushed. I am not a pessimist I am a realist. The next five years will be remembered for our lifetimes.
There are no fundamental underpinnings in sight. There are right now a set of economic dominoes in place, unlike anything in recent recorded history. You can all throw out the old rule books, new rules are being made and broken, on a daily basis.
The upside will be the world community working together to bring stabilization. Burning hydrocarbons for energy is currently in its death throws and will be replaced with super conductivity advances in electricity. This all will take time, and those rushing into any capital markets will likely fail from a monetary standpoint.
The answer for security lies more in inner strength than outward fixes. Those who will invest in spiritualism and not capitalism will flourish. If this is not to your liking you are choosing pessimism for an extended period of time.
The world is coming to an end. Curl up in a fetal position and remain completely motionless. Do not move ever again.
I’d respond, jblack…but … I’m … having … trouble … reaching … my … keyboard … from … this … fetal … position … 🙂
ps For clarity; my comments regarding credit were directed to credit card debt specifically; not business, new home, domain, etc debt.
One example: I know a 22 yr young college student who received a 15k (cash advance for entire amount no problem) unsecured credit card earlier this year … while earning less than $500/month.
This is the kind of baloney that gets people in trouble … and that never should have happened.
Steve,
Great effort! Yes, I agree many got in way over their heads. The silver lining is they learned a lesson. Similarly, our distant relatives who experienced the depression came out of it some very sound values, prudent advice, and priorities in alignment. Until now, most of us only had the poor examples of greed and excess to show others.
It’s funny they announce we’ve been in a recession since Dec ’07. When will they announce we’ve been in a Depression, 5-10 years from now?
Look I don’t want to spread doom and gloom here, I am an optimist myself. I figure people on this blog will be better off than the majority out there, so you can handle the question without a knee-jerk reaction.
The country, if not most of the world, needs a moral reset. A different way of doing business, living, and especially consuming. The tougher it gets, the more likely that’s going to happen to some degree.
tighter liquidity is what got us into a Great Depression. Less Credit, Credit Crush.. call it whatever you wanna call it. The simple fact is that a tighter credit market will not get us out of this recession, will only serve to prolong it. The problem today is we’re in a recession caused by a banking crisis. There has NEVER been a recession caused by a banking crisis, thus no one knows what the fuck to do. Throw billions here, bailouts there, tighter credit here, buy a bank there… At least we should be thankful something is being done, but that doesnt mean any of it will help.