The Market Oracle
Credit is drying up everywhere. Banks are now concerned (finally), about rising credit card debt. They have every reason to be. The bankruptcy reform act of 2005, which encouraged such reckless lending is now blowing up in lenders’ faces. Banks and credit card companies wrote that bill. They got everything they wanted. It goes to show you two things: Be careful of what you ask, you might get it. Greed kills. Furthermore, I expect many of the debt slave provisions of the bill to be undone after Obama is elected. That will increase defaults. Even if an unwinding of that “reform” does not happen, the writing is on the wall for lenders for the simple reason “You cannot get blood out of a turnip”.
Regardless of what the law says, unemployed people are not going to be paying credit card bills. A second point is that someone unemployed, with no income, will meet the strict guidelines for wiping away all their debt. I talked about this in Bankruptcy Reform Act Finally Blows Sky High. Banks have finally beginning to get the bleak message that credit card defaults are going to soar. In response, Banks are Trimming Limits for Many on Credit Cards .
The easy money that led Americans to depend on credit cards to pay their bills is starting to dry up. After fostering the explosive growth of consumer debt in recent years, financial companies are reducing the credit limits on cards held by millions of Americans, often without warning. Credit is contracting folks. Yes, this is deflation regardless of what energy and food prices are doing. More
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