Tales of credit card crunch have not been exaggerated

I've been foretelling the coming credit card crunch for as long as the mortgage crunch has been around. It's just obvious: The whole mortgage mess was assisted immensely as consumers rolled their credit cards into their home equity, paying for trips to Vegas and wide screen TVs with the growing equity in their home. Once the refinance was complete, do you think Americans stopped spending, chastened by their larger mortgage payment and the weight of their consumerism on their personal balance sheet? What do you think? I know for a fact that people just don't change like that, and in fact barely escaped falling into the trap myself as my husband was wooed by a mortgage broker with dollar signs in her eyes. (I resisted the siren song of more credit availability, barely.)

Meredith Whitney, writing in today's Wall Street Journal, is singing the same tune. Her headline reads "Credit Cards Are The Next Credit Crunch," and in the article she shows some startling numbers. The total mortgage debt outstanding in the U.S. is $10.5 trillion, a huge number; but a tear-inducing $5 trillion is outstanding on credit card lines. That's right: we're spending half of our homes' debt value for stuff (and groceries and entertainment and utility bills and, very probably, many of our mortgage payments, as well). But that's not the bad part.

Here's the bad part: Whitney predicts that $2 trillion of those credit lines will be cut by the end of 2009, and a total of $2.7 trillion by the end of 2010. Let's look at that number again: over half of the outstanding credit card lines will be cut by the end of two years. Half in two years.

The impact of this will be huge, vastly reducing Americans' ability to buy stuff (further impacting our recession), and in many cases, keeping people from affording basics such as power. And food.

I'll add on to the crystal ball over which Whitney has been waving her hands. What can't we afford without that $2.7 trillion in credit cards? It's not just wide-screen TVs and airplane travel. It's cell phone bills. Cable. Dinner out at fast-casual restaurants. Cigarettes. Health care. Dental work. The impacts of this coming, more devastating credit crunch will be felt everywhere.

What to do? Save yourself. Stop buying stuff. Cancel your cell phones. Brush your teeth and eat your veggies. Live within your means. Soon, you won't have a choice.
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