Credit Card Industry May Cut $2 Trillion of Outstanding Credit
Credit card companies are considering pulling back heavily in their consumer lending business, perhaps further dooming the U.S. economy for the year to come.Doom and gloom is the order of the day according to most economists and, thanks to the dire situation and ubiquitous reporting on the matter, has reached into the psyche of consumers. With stocks slipping, credit drying up from commercial banks, real estate prices and home sales plummeting and retail spending on the decline, the latest blow to the U.S. economy may come from the credit card industry. The bastion of easy money that seems to fit the immediate gratification mentality of the average American may, in these tough times, turn its back on freewheeling short-term lending of the past (and present) and pull back over $2 Trillion worth of outstanding credit.
Newfound risk aversion, as well as regulatory lending changes is already leading to a reduction in consumer spending. If the credit card companies do indeed reduce credit, the crunch will likely reverberate throughout the U.S. financial system and could conceivably extend what is already likely to be a prolonged recessionary period. Banking analyst Meredith Whitney notes, "we expect available consumer liquidity in the form of credit card lines to decline by 45 percent." Three of the major players in the field, Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. have all considered slowing the growth of their credit card lines or even reducing credit. Those three companies represent over half of all U.S. credit card debt outstanding.
Said Whitney of the situation, "We are now beginning to see evidence of broad-based declines in overall consumer liquidity. In a country that offers hundreds of cereal and soda pop choices, the banking industry has become one that offers very few choices." Whitney refers, of course, to the fact that almost all of the U.S. mortgage and consumer credit lending that takes place in the country is in the hands of only five major institutions. "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."
Newfound risk aversion, as well as regulatory lending changes is already leading to a reduction in consumer spending. If the credit card companies do indeed reduce credit, the crunch will likely reverberate throughout the U.S. financial system and could conceivably extend what is already likely to be a prolonged recessionary period. Banking analyst Meredith Whitney notes, "we expect available consumer liquidity in the form of credit card lines to decline by 45 percent." Three of the major players in the field, Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. have all considered slowing the growth of their credit card lines or even reducing credit. Those three companies represent over half of all U.S. credit card debt outstanding.
Said Whitney of the situation, "We are now beginning to see evidence of broad-based declines in overall consumer liquidity. In a country that offers hundreds of cereal and soda pop choices, the banking industry has become one that offers very few choices." Whitney refers, of course, to the fact that almost all of the U.S. mortgage and consumer credit lending that takes place in the country is in the hands of only five major institutions. "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."
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