The Implosion of Credit in America – A New Paradigm
In 2008, as we moved into the financial crisis, Americans were saddled with more credit card debt than ever before. The cycle began with decreasing home values which reduced equity. Credit card companies, despite getting bail outs from the US government were reevaluating their portfolios. Americans on the cusp were notified that credit lines were being reduced or closed. The reduction in credit lines impacted the ratio of available credit to outstanding debt which caused the credit scores to fall. Falling credit scores caused yet another round of credit line decreases plus an increase in interest rates. The US Treasury is handing out money for close to zero percent but the credit card companies are now charging Americans as much as 30 percent interest or more. The rise in interest rates is making it near impossible to make more than the minimum payments each month and late payments are becoming inevitable. Decreasing credit lines, increased debt to credit ratios, paying minimum payments causes further decline in credit scores creating yet another round of credit line reductions. Where does all this end. How do Americans dig themselves out of this loan shark driven credit market? Eliminate debt? Tough to do when assets are dwindling, jobs are scarce and wages are falling.
However, that is the answer. Eliminate debt. Convert remaining assets into cash and reduce debt. Deplete savings and reduce debt. Cancel any hopes of retirement and reduce debt.
Or?
There is one other option Default. Here is a logical argument for defaulting:
• Americans are supplementing the income of credit card companies through bail outs with their tax dollars anyway.
• The cyclical decline of credit scores is self induced by the credit card companies making the value of those scores virtually worthless. A clever scam to make more absurd profits by increasing interest and fees to the point of strangulation.
• There is obviously no end to the greed of the credit card companies as they maneuver around the intent of the law discovering loophole after loophole, political and geographic asylum. Out of state or off shore solutions are well within their bag of tricks to suck America out of America.
• The United States government does not have the stomach to call it like it is. Greed gone wild and the bankruptcy of America. And as goes America, so goes the world.
• The Credit Card Reform law going into effect in February 2010 doesn’t go far enough. So what is safe? If the greed continues, what kind of anarchy will result. Is your home safe? Your car? Your services like telephone, electricity, fuel? Groceries?
Where is the outrage? Why do Americans accept this kind of self indulgent behavior by the leaders of our largest publicly held financial companies. We wouldn’t permit our children to behave like this.
Here is some further reading:
http://www.dailyreckoning.com.au/bankers-pull-another-fast-one/2009/02/16/
http://money.blogs.time.com/2009/10/30/ten-signs-that-the-economy-is-still-in-awful-shape/
http://www.usatoday.com/money/perfi/credit/2009-05-21-obama-credit-card-reform-law_N.htm
