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 Credit.com.
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.
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.