Saturday, May 24, 2008

Bailing out in flood of debt

Regardless of what the mainstream shills are saying, the credit crisis is far from over and a myriad of future economic troubles continue to brew on the horizon.

Home sales (and prices) are still falling, foreclosures are increasing, the Fed remains the sole buyer of toxic waste/securitized garbage, credit remains tight, the economy is shedding jobs, gas and food prices are rising, state tax revenues falling, and the consumer -- who is already starting to pull back on discretionary spending, is barely staying alive by charging daily necessities on credit cards, but this will soon change...

Up to around 12 months ago, millions were able to use the paper equity from rising home values to pay off old credit card/auto debt, but falling home values (in many cases) has now turned that once fat equity cushion into an upside-down household liability. Overall household debt levels are now higher (due to the refinance or HELOC), and the recent consumer inflation wave has now driven our payday-to-payday consumers back to the credit cards -- just to put food on the table and gas in the car.

With credit card delinquencies at a 16 year high, Oppenheimer analyst Meredith Whitney is warning that we should expect to see banks strip away 45 percent of the card credit now available — about $2 trillion, by 2010.

Bailing out in flood of debt

Credit card companies and banks are worried that people are drowning in debt and will fall behind on payments. With home values declining and banks wary of handing out loans, outlets for escaping overwhelming debt are limited.

Consumers are finding themselves caught. Card firms are getting tougher, sometimes canceling unused cards or raising rates seemingly for no reason. And 30 percent of banks said in a recent Federal Reserve survey that they had tightened standards on consumer loans.

People who depend on loans and credit cards are likely to feel increasingly strapped in the future. Oppenheimer & Co. analyst Meredith Whitney has estimated that by 2010, credit card issuers will be so pressured by financial concerns and regulation that they will strip away 45 percent of the credit now available—about $2 trillion.

Already, many credit card users are running into trouble. If they miss payments or are late even a few days, interest rates often go up for that card—and others. Some are running up balances without realizing that they are inadvertently damaging their credit scores and making it more difficult to get the best rates on a car or mortgage loan.

"The rules have changed," said Gerri Detweiler, author of the "Ultimate Credit Handbook" and analyst for

And delinquencies on consumer credit are rising. According to the American Bankers Association the level of delinquencies—or people behind on payments—for certain loans recently was the highest in almost 16 years.

Closing thoughts:

With increasing job losses, a higher cost of living and far less available credit, how will J6P and his family survive?

Our next Democrat President will be in office by then (McCain can't win it for the Republicrats), so expect to see far more monetary printing and taxpayer funded social programs instituted to help them out.




Anonymous said...


The proverbial Piper is finally calling in his wages. Long overdue I'd say!


Expat said...

Burn, baby, burn!

We mismanage our economy and finances like we mismanage our forests. We need to let the underbrush and dying trees burn from time to time. Otherwise we get conflagrations.

Let the investment banks die. The only thing that will be destroyed is the system, a corrupt, bent system. The buildings, computers, and workers will remain. Starting an investment bank is not like building a chip factory; it costs little and can be done overnight.

Let the US Consumer (weren't we once "Americans" or "citizens"?) stop buying crap and wasting food. Let home prices return to affordable levels. Let people stop wasting so much gasoline.

Burn, baby, burn.

Randy said...

David & Expat,

Always good to hear from you two.

Thanks for posting up!


Anonymous said...

obama has 0% chance of winning, randy---28-36% of hillary voters are going to vote for mccain to spite obama--this is a fact---at that rate mccain would win around 60-40---sorry, repubs again---and also not one asian or hispanic/latino/cuban et al will vote for obama---if going torun your campaign looking for the youth vote dont worry--they will let you down again

applejuice said...

To other Anon: I think Obama will win in a landslide. Despite the gripes of the white switchers you cite, they won't vote for McCain. They might stay home but few will vote for him when the choice becomes clearer.

As to whether Obama as president will act financially irresponsibly, I doubt it. Unlike McCain and Clinton, Obama did not pander to the tax holiday ruse. This again shows the man's moral fibre. If he begins to seriously slash the defense spending, end the wars and go after pork, he can turn things around.

No one wants to see American fail. The world has too much invested in America's success. That's why the dollar has not fallen through the floor despite the Third World debt:GDP ratio of the US economy.

The rest of the world is moving into making money and business deals with other countries and away from war. Only America is obsessed with killing, bombing, executions and jails. Once America begins to turn away from the hypnotic hallucinations of the "fear everything" Republicans, the US economy and prestige will return.

There will be problems, but like those who wrote off NYC in the 1970s, the rumors of America's demise may be a little exaggerated.

Barry from Canada

Anonymous said...

Ha,Ha,turn it around?Maybe in Canada,I don't know their numbers,but here in the U.S.we're screwed.
Our problems have been developing for a long time,and every time they were mentioned,they were swept under the rug.It's too late,the damage is done.

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Ethel said...

I have to say that I agree with you Randy that credit card companies are getting tougher. My sister had missed a couple of payments because she was laid off. She used to be good in managing her finances but without a job she can't afford to pay her bills. Her best friend suggested that she find an expert on debt settlement. Los Angeles County residents are fortunate to have several professionals that can give excellent advice on credit management. Here in Canada, we also have Debt Settlement Ontario offices that can accommodate debt management solutions for those who have fallen to a "debt trap". Well, thanks for the great insights Randy. I sure enjoyed reading your post. More power to your blog.


Its one bailout after another.


Bad news