Bub, we’re already there and all the signs are there that now that the mortgage crisis has gone into freefall, the cascading effect of those people turning to their credit cards to bridge the gap looks like it’s going to lead to defaults on that front as well — credit card debt is nearing a whopping $1 trillion, a new record. (Center for American Progress Report):
“There is no question the economy has slowed down,” he said. “I don’t think we’re headed into a recession, but there is no question we are in a slowdown…why don’t we let the stimulus package we have a chance to kick in.”
– Dear Leader, at a press conference last Thursday.
The U.S. credit card market is showing signs of trouble just as the home mortgage crisis surges to unprecedented heights across the United States and throughout the global financial marketplace. Against the backdrop of record-high numbers of home foreclosures, lenders are tightening mortgage lending standards, making it harder for families to maintain their consumption in the face of weakening income growth. At the same time, credit card issuers present their all-too-convenient lending product as a much needed but inevitably dangerous pressure valve for cash-strapped borrowers.Here’s an NBC report on it (via Think Progress):As borrowing in the mortgage market slows, credit card borrowing is accelerating—a dangerous trend because borrowers still face weak income growth. That means the credit card market could eventually run into the same problems that now afflict the subprime mortgage market.
The lending industry that no longer aggressively issues subprime mortgages continues to aggressively market credit cards, especially credit cards with subprime-like lending terms, such as a variety of higher fees that are poorly disclosed. In the end, more and more borrowers could end up defaulting on their credit card debt because they do not fully understand the terms and conditions of their new plastic, which could prove detrimental to their financial health. Déjà vu all over again!
The consequences could deliver further uncertainty to financial markets and additional turmoil to the economy as more consumers file for bankruptcy, driving down the value of securitized credit card receivables.
The next occupant of the White House will inherit a helluva mess to clean up.
31 Responses to “Bush’s ‘What, me worry?’ economy as credit card meltdown is dead ahead”
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I loved The Nation when they had their ‘Worry’ t-shirt but when I tried to order it, it was ‘out of stock’ and never came back into stock…
Bummed isn’t the word…
Life is good, for the very rich and those living elsewhere, or so it seems…
I’d love to live in French St. Martin…
oh, as far as the next president having to cleanup a huge mess, that depends on what Bush does to ‘grease the skids’ to get the idiot and puppet John McCain into office…
If Osama makes an appearance, someone had better check him for anti-freeze and stuff… He’s probably been in the deep freeze under Cheney’s house for a few months…
Almost every part of America is on the skids. Credit card debt, home sales, grocery prices, ‘energy’ prices… The middle and lower classes are taking it to the bone and many of them have willingly thrown themselves onto the grenade that Bush has tossed into the economy.
I see plenty of scared and ignorant people in the pictures and videos of Bush and McCain. Scared from the ‘feed the fear’ diet of the Bushists and their media cohorts and ignorant because I’ve heard people say that, smart people (or so I thought) that are adamant that they don’t want to pay for ‘lazy and stupid people’s healthcare’ without realizing that EVERYONE and their healthcare is incredibly linked.
I still fear the denial of universal (non-insurance company payola) real healthcare benefits that provide meaningful benefits to cover ‘everyone’ will end up biting us, the entire human race, in the ass hard…
Who would have thought that the sewers were the reason for ‘the plague’ that wiped out what, millions of human beings… If the English had said that ‘we will not provide benefits to the poor’ then the problem wouldn’t go away… It was a human rights as well as a human healthcare issue. America could very quickly descend into the abyss of a stinking, feted, diseased cesspool of a third world country. Owned and controlled by the enemies of human rights in the world: Israel, Saudi Arabia and China to mention some of them… Nice job, George Osama Bin-Laden Bush…
What we are seeing is an inherent problem with Republican economic policy: “Trickle-down Economics” doesn’t trickle down.
This is a gross oversimplification, but the main principle behind supply-side economics is that economic policy should benefit producers. As the cost of production goes down, investment will go up, prices will fall and the prosperity will “trickle down” to the consumers.
The biggest problem with this is that prices don’t fall and prosperity doesn’t “trickle down”. Easy credit makes up the difference, but only for a while. There is only so much debt consumers can take on. Eventually the suppliers wind up with everything - and no customers!
Furthermore, cuts in Government social spending hurt the economy. Contrary to right wing myth, social programs do have economic value. If I send my children to public school, then I do not have to spend the money to send them to private school. Despite rightwing predictions that “socialized medicine” will destroy a country, countries with “socialized medicine” are doing quite well, thank you very much. The reason for this is because the service has economic value. Canadians aren’t spending their money on health insurance and doctor bills, so they can spend their money on something else. Cutting useful social programs is kicking the consumer when he’s already down.
Conversely, pissing away public money on a war we have no business fighting helps no one outside the defense industry.
We’ve been down this path before. These policies led to the Panic of 1896 and the Great Depression.
from money matters
http://elainemeinelsupkis.typepad.com/money_matters/2008/02/elaine-meine-10.html
This is a lot of money. And this is just real estate. Always, the biggest losers are corporations and governments. When they begin to fall, this is when we get full-scale depressions. Inflation surges when we have a growth in the money supply. What we are seeing is an epic collapse in the money supply. I noted last fall that the central banks injected over $600 billion. This hasn’t revived much of anything. But I suspect it kept things afloat for a short while. But it can’t fix the leaking ships. They will still sink.
Asian market is crashing at the moment (3% or so. nasty.)
diesel price is puncturing $4/gallon in several areas.
Anybody still want Bush privatized social security?
http://bloomberg.com/apps/news?pid=20601087&sid=a6fTHIHgTnqs&refer=home
Bush Deficit Widens to Record as Treasuries Deter U.S. Pensions
Philadelphia’s $4 billion pension deficit is causing the city’s retirement-fund manager to shun Treasuries at a time when the Bush administration needs him most.
Yields on 30-year U.S. bonds that fell to a record low of 4.10 percent this year are forcing pension funds to favor equities, corporate debt and commodities in an attempt to cover unfunded liabilities and meet return objectives of about 8 percent. Even the federal government’s own Pension Benefit Guaranty Corp. said on Feb. 19 that it plans to shift $15 billion to stocks from debt.
The next occupant of the White House will inherit a helluva mess to clean up.
Unfortunately if it’s a Democrat in the office the Repubs will find a way to spin it so as to blame them for the mess and not Bush. Ugh
The next occupant of the White House will inherit a helluva mess to clean up.
“You say that as if it were a bad thing….”
Well, given that your preferred candidate is running on both a “middle class tax cut” and new domestic spending projects that some have totalled as high as $800 billion, even if Mr Obama pulled us out of Iraq in his first thirty days the deficit would increase if he keeps all of his promises. If he starts out wityh a recession, he’ll be in an even tighter box.
What would you do?
GW is looking forward to your contiuing debt servitude and hopes you’ll find the Cheney Detention Centers to you liking. We simply can’t have our lessers making a living. Just look at how successful the favelas are at providing cheap and disposable labor.
I’m starting to believe that a measurable amount of the excessive consumer debt arises out of mandatory use of credit. Think of how many situations require the use of a credit card (and in some cases, cash won’t be accepted even if is practical*). By simple operation of the law of averages and general human infallibility a certain percentage of that is going to slide into late payment or default.
* - I haven’t used credit cards for about 15 years now., but I am wondering whether or not I will have to start again; I am running into more and more situations where cash or debit or prepayment isn’t permitted. Just last week I could not book a hotel room a month and a half in advance without a credit card, even with debit prepayment. “It’s against policy!”, I was told, supposedly because too many locals were renting hotel rooms for parties and disturbing the other guests. Just one example.
Anybody else out there running into or seeing the same thing?
“Anybody else out there running into or seeing the same thing?”
Yes. Try to rent a car without an actual credit card…
Dana asks, What would you do?
Well, given that Dana’s view on even proposing correction of a tax system where the rich are paying less in and getting more out is “want[ing] to steal [money] from people who earned it, to give to people who did not”, we can easily answer that.
What would we do? Stop listening to libertarians, conservatives and Republicans. They ran the USA into the fiscal ground from 1981 to 1993 and they did it again under this Bush administration.
What would we do? Stop listening to people who feel taxation aimed at producing a just, functioning civilized society where people can live without being in constant terror of being sick or poor is a moral wrong.
What would we do? Stop listening to people who demonize and denigrate other first world countries who (GASP!) manage to have thriving capitalist economies AND health care and social services.
What would we do? Stop listening to people who feel that taxing the rich is theft and taxing everybody else is normal.
What would we do? Stop listening to people who get it wrong every time.
Yeah, MikeEss, I ran into that three years ago when trying to rent a van from a large chain. The fact that the chain can say, “no rental unless you pay for this and this and this insurance up front” and thus achieve the same end as a credit card doesn’t seem important.
Seeker6079, while I haven’t come across a situation that won’t be covered by the debit card I have with a checking account that works just like a credit card (has a mastercard logo), it looks like it’s going to be increasingly difficult to do many things without the established credit that a real credit card brings. Getting a car loan, for example.
The next president is not going to be talking about “tax cut” or universal healthcare or what not…
If Bush keeps doing what he is doing, along with congress, the first presidential act would be “bank holiday, to prevent massive run and economic collapse.
There is a reason why asian market is gyrating 3-4% and DOW keeps plunging 2% despite massive 1.25% rate cut. The world does not trust US banks and money is being sloshed around in market, commodity and futures. (anybody seeing gold and oil price lately? they are all record high.)
Most people in the now already think small banks will go bust, and one or two major will go down soon. (Citibank is prime candidate.)
So if you have big saving in dollar, shaky small banks or in Citibank, get it out and put it somewhere else. The next 6-10 months are going to be rough.
“What would we do? Stop listening to people who demonize and denigrate other first world countries who (GASP!) manage to have thriving capitalist economies AND health care and social services.”
seeker, we all know you live in Soviet Canuckistan. There’s no REAL capitalism in The Great White North. Besides, America is special. Very special.
You Canadian Socialists might think it’s okay to take a portion of the money that rich people have
worked so hard to earnreceived in payment for services rendered (just like a prostitute), in order to provide Canadians “health care” and “social services” (hey, get a job you deadbeats!).In America, we believe the rich should keep ALL the money poor and middle-class Americans helped them get. It’s important for us to have rich people to look up to, especially if you’re looking up at them from the gutter, a homeless shelter, or the Emergency Room…
:)
Moderation is our friend.
Moderation is our friend.
Moderation is our friend…
Consumers are sheep. If credit card holders with good credit standing threatened to cut up all their cards, the rates, which are usurous, would go down.
This weekend I purchased a VISA gift card for someone. I was charged $5 for a $50 card. So the credit card company is going to make money every time the card is used, plus they got a fee for the privilege of being charged a fee to use the card.
That was the last gift card I will ever purchase. I pay my cards off in full every month rather than carry a balance. It is the only way to not go into debt forever.
Thanks, MikeEss, for reminding me: The poster for our picnic is ready.
The central social committee could not be more thrilled. (Left to right: Amanda Marcotte, Dana, libertarian).
I’m sorry! I got the parties the previous photo wrong.
This is the right photo. Left to right: Amanda Marcotte, MAJeff, Interrobang. libertarian is not in the picture. Dana is at right in the orange top.
My bad.
Maybe now the credit card companies will stop sending me those annoying offers that I have to shred so that someone doesn’t steal them and ruin my credit.
[/pathetic attempt to look on the bright side]
I’m right there with you, DBK.
Unfortunately, paying off your balances in full each month drives your FICO score down, because credit card companies don’t want their cardholders to get out of debt. Ever.
DBK, Mezosub:
Do they teach credit management in elementary and high schools?
Depends where the school is, seeker.
I took a Consumer Education course when I was a senior in high school, and the pinnacle of our instruction was how to reconcile a bank statement.
There was no discussion of using credit responsibly, how credit ratings are calculated, or how to get out of debt by paying off the highest-interest debts first. There was also no discussion of how credit card companies use on-time repayment as a way to keep consumers from obtaining additional credit.
There was, however, way too much time spent discussing how buying in bulk and cooking instead of puchasing processed foods or dining in restaurants was a way to economize in budgeting. There was also far too much time spent discussing compound interest and saving for retirement when what we should have been taught was how to leverage low-interest government loans to pay for university and buy our first homes.
They should teach it in elementary and high schools. Great point. Had a very interesting discussion with a cousin yesterday. She mentioned that she was thinking of having a discussion about finances and how tro handle money with her nieces, but thought they might be too young. The nieces are 12 and 15. Mrs DBK and I told her she was a wonderful aunt and should do it as soon as possible.
This struck me, though:
“Unfortunately, paying off your balances in full each month drives your FICO score down…”
Without going into details, this is not true, based on my personal experience.
This is a bad sign. This is what happens when consumers are strapped to the hilt, and when big banks are overly dependent on fees from credit cards and quarterly results.
If they were thinking about the long term, they would tighten restrictions on issuing new cards, instead they loosen them so that they can get more fees from the cards.
Which will cause default, and somehow consumers will end up in bankruptcy, eventually (though the bankruptcy bill makes it harder to declare bankruptcy with credit card debt - ironically, made it easier to get out from under mortgage debt), and they’ll be taking a big hit.
I, for one, am aggressively paying down my credit cards.
At this point, I could give a crap about lowering my credit rating. I will still have student loan and car debt, so the credit bureaus can go screw themselves.
DBK,
While the item above may not be true in your personal circumstance, it is true that FICO score is calculated using amounts owed.
During the calculation, the credit reporter looks for a ratio of total credit available to total amount owed. This means that, depending upon the time of the billing cycle when credit is checked - say, for example after the statement closing date but before payment is posted - the consumer could appear to be overextended to nearly the limit of available credit, even if payment of the full balance is only a few days into the future.
There was an article a few weeks ago in the NYT about people doing their best to live within their means, rather than on credit. Most of the people discussing this strange new phenomenon seemed to think it was a bad idea, because without extravagent spending how would the economy survive.
Whee.
@seeker, #10:
“Think of how many situations require the use of a credit card (and in some cases, cash won’t be accepted even if is practical*). Anybody else out there running into or seeing the same thing?”
Funny you should ask; this just happened to me for the first time last week. (You have a tap into the NSC database?)
My car got towed overnite (too many parking tkts), and I had two class openings that das, one about 40 miles away. I called my usual rental agency and reserved a car, only to be told when I went to pick it up that my DEBIT card would not do. It had to be a CREDIT card — and I don’t have any. My happening to have an ATM receipt on me showing an available balance of nearly five figures (more than many people’s credit limits) had no impact on them. I wound up borrowing a car from a friend. (It’s times like that when you learn who your friends actually are.)
If this is a leading indicator — and what you’re saying suggests it is — I guess I’m going to have to get me another credit card. Yuk.
No.By the way, if I may ask, just for conversation… How come you hit the keyboard so hard with your left ring finger? Much harder than the others.
Just askin’.
From another thread, discussing why such things are not taught in school:
It also might be a horror found in many of those who design curricula that anything might be found on them that teenagers might need once they get out in the real world. In HS I had a belief — repeatedly and vigorously expressed — that most HS science was deliberately or obtusely of no use in the real world and usually painfully boring, and that real science that we might need (environmental issues, engineering related to how homes or cars worked, orienteering in and understanding of the woods ) was ignored as insufficiently “academic” and denied to us. Oh lord, I remember being sneered at in HS by teachers who thought that these beliefs reflected only an immature mind. I also remember the exultation of listening to David Suzuki speak and hearing him tear a strip off of HS curricula, saying all the things that my HS teachers had pompously said were childish nonsense.Remember, kids! From sex ed to street signs to saving and credit, HS’s motto is If You Need It and If You Want To Learn It Here, You Can Just Fuck Off.