The Next Bubble Is on the Way: Credit Card Debt

[marmar]

from CommonDreams:



Published on Monday, August 11, 2008 by CommonDreams.org
The Next Bubble Is on the Way: Credit Card Debt
Why Are We All Complicit in Our Own Economic Servitude?

by Danny Schechter



Let me try a few words out on you: “Charge It,” “Swipe It” and “Priceless.”

You know exactly what I am talking about. We all have credit and debit cards. We all use them, and many of us keep our lives going because of them.

That is, until the bill becomes due.

The sad truth is that we are all complicit in our own economic servitude even if, at bottom, it’s not our fault because we live in a consumption society, and don’t feel we could live without them.

While many eyes are focusing on the housing meltdown and its hugely negative effect on an economy clearly moving into recession, few are paying attention to the next bubble expected to burst: credit cards. You would never know it by watching those slick VISA card ads on the Olympic TV broadcasts.

Combined with the subprime losses, such a credit card nightmare has the potential, experts say, of bringing down the entire financial system and global economy.

You and your credit card have become key players in the highly unstable financial crunch. Mortgage lender cupidity and bank credit card greed wedded to financial institution deregulation supported by both political parties, have been made manifestly worse by Bush administration support-the-rich policies. It has brought us to a brink not seen since just before the Great Depression.

While campaigning in Edinburg, Texas, in February, Barack Obama met with students at the University of Texas-Pan American. “Just be careful about those credit cards, all right? Don’t eat out as much,” he said. After the foreclosure crisis, he warned, “the credit cards are next in line.” .....(more)

The complete piece is at: http://www.commondreams.org/archive/2008/08/11/10921/

[Mojambo]

1. Recession-Plagued Nation Demands New Bubble To Invest In

http://www.theonion.com/content/news/recession_plagued_nation_demands

"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."

[originalpckelly]

2. Baseless credit is the death of free markets.

It allows non-reality based inputs into the system, and therefore opens it up to false valuations of products. In turn, those false valuations cause massive inefficiencies. Example: housing prices rise beyond realistic and sustainable valuations for houses, production of houses increases in the same manner. Our system is one driven by profit motive, so producers are always reacting to the input of demand.

Credit cards allow people to go out and buy $500 shoes, this falsely tells the manufacturer of those shoes that more shoes of that price are needed, when in reality they aren't. If there was no credit card, people would be forced to make better value judgements and therefore increase the quality per dollar of goods in our system, making the system more efficient.

We are witnessing the downfall of our system, in fact it has already collapsed, but credit has kept the correction from being felt. It's sort of like when Wile W. Coyote chases the Road Runner off a cliff, suspended in mid-air, until he realizes what happened and starts falling.

[marmar]

5. "Wile Coyote chases the roadrunner off a cliff, suspended in mid-air, until he realizes ...."

Great analogy. :thumbsup:

[originalpckelly]

6. Well, a misspelled analogy...

but yeah, I'll even go so far to pat myself on the back for that one, because it's completely fitting. :P As you can see, modesty is not one of my failings. :P

[Odin2005]

34. I very much agree.

I don't have a problem with credit in and of itself, it has a necessary economic function. What I do have a problem with with TOO MUCH credit sloshing around the economy causing bubbles and causing people and businesses to rack up massive debt.

[TechBear_Seattle]

3. I have been working very hard to get out from under my CC debt

It has been very tough, and I am single with a good income. I cannot imagine what it must be like for a struggling family.

I agree that the current credit crunch will soon be hitting much closer to home with credit cards. When that comes, it will make the mortgage crisis seem like a church picnic.

[originalpckelly]

7. It's not your fault at some level...

maybe some people splurged when they shouldn't have, but these credit cards have been giving people what they had a right to, the fruits of their labor, without actually getting it.

[TechBear_Seattle]

9. I know a lot of people who have used CCs as an emergency loan

While 24% or even 30% per year is much cheaper than going to one of those legal loan sharks (aka "cash advance" stores) it can be just as difficult to dig out of. Because of the damned H-1b visa program, a lot of my tech worker friends are out of work or making due with minimum wage work as they struggle to pay off mortages taken out in the late 90s during the tech boom. Seattle will be one of the areas hit very, very hard if the personal credit card industry goes bad.

[originalpckelly]

12. It's the whole system that's coming down.

We're talking about very basic supply/demand imbalances, the kind of stuff that really brought down the Soviet Union, and interestingly enough the very same problem of socialism is behind it. Corporations are socialist institutions, so when conservatives argue for corporate control, they're really asking for socialist control of our affairs. That's why our nation is such shit, we're living in the corporate version of the USSR.

[alcibiades_mystery]

18. Nonsense

Reread your Coase and stop peddling this Friedmanite shit.

There are no pure markets, and never have been.

[originalpckelly]

19. I have a mind and I think for myself, and I came to these conclusions on my own.

I have never read a single piece of work by Mr. Friedman in my life, these are conclusions derived from my work in physics for my own personal consumption.

[alcibiades_mystery]

22. They're bunk

[Dr.Phool]

23. You're using the wrong word. It's fascism.

The only socialism involved is a perverse facsimile. Socialized risk (to the public) and privatized wealth and profits (for the corporations).

Thats not socialism.

[mike_c]

4. no, we don't all have credit card debt....

Just like we don't all owe the bank for the shelter over our heads. I'm truly sorry for the pain this will cause, but can't help feeling a bit glad the axe isn't directly over my head. On the other hand, if the state budget tanks-- right, if it tanks-- this is California and it's pretty thoroughly tanked already-- I'll likely be dragged down in the general collapse DESPITE living within my means.

All ya'll with huge debts-- WHAT WERE YOU THINKING?

[TechBear_Seattle]

16. Not all people with huge debts got there by choice

I have very little sympathy for people who bought homes they never could afford. But credit card debt....

Yes, a lot of people have used their credit as a revolving charge account for "little extras" that never should have been bought in the first place. But I personally know a lot of people -- myself included -- who had little choice but to take what credit was extended, at whatever terms were available, and make as much use of it as possible.

In my case, I got my first credit card when I was in college. I was attending Humboldt State in Arcata, California. My first year, the only job I was able to get was about 10 hours a week working in one of the computer labs. My education, books, dorm and the minimum food plan was paid for by student loans, but I was limited to two small meals a day with nothing for clothing or various additional fees. Soon after classes started, a card company (Capital One, I think) was handing out applications. "Sure!," I was told. "You can put down the amount you received in student loans as income!" I got a card with $2000 on it. I was careful in how it got spent: I used it only to buy "points" on the campus food service plan and to pay for various academic fees and books not covered by my loans. By the time summer started, I had spent just over $1000. The minimum wage job I found over the summer paid for my summer rent (a house shared with five other people), bought some food (assuming I ate at least one meal for free at the restaurant where I worked as a cashier) and kept me current on the interest. A few months into my second year, I was in default. It took me six years after that before I was able to pay it off.

I have several friends who used to have high paying tech jobs, and bought homes accordingly (with responsible mortages.) But then came the crash of 2000, followed by the creating and abuse of the H-1b "guest technical worker" visa program. Many of these friends have had to take serious cuts in pay, or have had to leave the tech field altogether. Contract work pays well but is sporatic, and many have been forced to use the good credit built up during the boom times to tough it out as they struggle to keep their homes and put food on the table.

Then there is my friend's wife, who was diagnosed with breast cancer a few years ago. Seeing as they both had been programmers and were both on contracts without health benefits, they were forced to not only sell their home but also max out their credit cards to save her life. She survived her brush with death, but their credit rating was nowhere near as lucky. Last I heard a few months ago, they were still tens of thousands of dollars under.

These are just experiences closest to me. I cannot imagine that they are in any way atypical of America at large. Hundreds of thousands of layoffs in this country each year. Factories closing. Companies forced out of business due to offshoring. The skyrocketing price of gas affecting the price of everything else, even fundamentals like wheat, milk and eggs. When it comes down to borrowing at 30% a year on your credit, or borrowing at 300% at a legal loan shark, what are you going to do? When your choices are to pay the rent, buy bread or use your credit card to do both, where can you turn?

That is what makes the situation so damned tragic.

[mike_c]

20. six degrees of separation....

Oddly enough, I'm on the faculty at HSU in Arcata.

[TechBear_Seattle]

32. I was there 92-94

If you were teaching there at the time, I probably met you. If you work in math, physics or philosophy/religion, I very likely took a class from you.

:hi:

[mike_c]

35. no, I started in 1997....

Biology.

[roguevalley]

24. illness in the family, two deaths that cut the income down to one

third of what it was before, debt incurred and having to be cleared up in probate, shall I continue? you seem to feel that all people standing in shit put themselves there. Look again.

[mike_c]

30. point taken-- I meant consumer debt....

But even the emergency expenditures are just plain foolish on credit cards-- look, I don't HAVE any credit cards. I refuse them when they're offered. Credit card debt is not an option if you don't accept the cards, and damn, with up to 25 percent interest and predatory contracts only a fool would agree to accept one in the first place. Fair disclosure-- I used to have consumer credit cards, but I don't anymore and never will again. They are a sucker's illusion of wealth.

[ComtesseDeSpair]

31. Oh, I Don't Know...

Maybe I was thinking that I really should get my teeth fixed so I don't have to live in constant pain every time I take a bite of food. Or maybe I was thinking that I should go ahead with that surgery to stop another painful ailment. Or maybe I was thinking that I should go ahead and have that emergency treatment to my dog to save her life. And maybe I was thinking that I should pay for that trip back to California to see my failing father while he's still alive.

You know, not everybody accrues credit card debt because they buy luxuries. Many of us live from check to check and have just enough money to cover basic expenses, so when something out of the ordinary comes up, we have no choice but to charge it. And yes, I am downsizing everything in my life and moving at the end of September at the end of my lease to a much cheaper apartment to stop the hemorrhaging, and I will pay it off eventually, but you should realize that a lot of this problem is caused by people not having enough savings to afford high expenses. Medical costs, in particular, are causing many people to drown in debt. I have a friend with a $40,000 debt caused by one trip to the ER. We're not all drowning through greed.

[mike_c]

37. but for god's sake why use credit cards...?

They're PREDATORY. This is like listening to people who hang out in snake pits complaining about all the awful reptiles.

I have dental problems too. I'm paying off an ER bill as well, a bit at a time-- and I know how catastrophic that can be. And as Warpy points out below, student loan debt is my biggest financial burden. But despite my intending to focus on consumer credit debt, which really IS a huge proportion of the collective credit debt, it's also true that if you don't have credit cards in the first place you still find ways to finance the things you really need-- I save some money when I need to go to the dentist, for example, and try like hell to plan ahead to avoid emergencies. If I can't pay for something, I do without it. It's not a bad way to live. Folks CAN live within their means, or at least live without predatory banking practices.

In America, when someone offers you consumer credit, you can pretty much assume you're being screwed. That is utterly transparent and up front if you pay attention. The problem is, too many folks are fixated on the carrot and miss the stick altogether until it is too late.

[MadHound]

39. Not all are drowning through greed by any means,

However I think that most of the CC debt does come about through greed. I've watched friends, family, neighbors, and people in general over the past decade, and the use of credit to buy what are essentially toys is horrendous. For instance I've a former neighbor who bought a house with five acres with an ARM. They then proceeded to buy ATVs, a new boat, car and various other such stuff for three years. Then the bills started to come due, the ARM went up, and they couldn't keep up with it all. The toys were repo'd, the house and land foreclosed on, and the family had to move back to the city and rent. These peoples' lives were destroyed by their own greed, and this scenario has been played out millions of times throughout this country. Now it looks like we the taxpayers are going to have to pay out even more, and though we've done the right thing, watched our finances, have no CC debt, we're still going to be effected through government bailouts, a wrecked economy, increasing taxes, etc. etc.

There are many legitimate reasons for going into massive debt in our society, medical costs being the chief one. I have all the sympathy in the world for people in those situations. Another reason why we need single payer UHC. But for those people who wanted to live a champagne lifestyle on a beer budget, and used CC's to make up the difference, no, I have no sympathy at all.

[MadHound]

8. Yep, the other shoe is about to drop

And once again, it is going to occur at the intersection where Greed meets Stupidity. Greed on the part of the banks for pushing credit cards so hard, and stupidity on the part of those who use them. And once more, even those of us who played by the rules, did the right thing and stayed out of stupid debt are going to be paying for other people's mistakes, one way or the other. Yippee:eyes:

[originalpckelly]

13. Correction, the other $500 designer shoe is about to drop.

:P

:-( For the consequences.

[MadHound]

15. LOL!

Sad indeed will be the consequences.

I saw this coming years ago as more and more people began using their credit card for everything. The first few times somebody whipped out their card for a burger and fries or in the coffee shop, I was just floored. As it became more common, I became frightened, for this sort of debt load simply isn't sustainable.

Sure, I understand that lots of people had to use CCs for emergencies, but a lot of CC debt is just plain extravagance, toys, CD's etc. It's scary living in a college town watching the amount of CC debt these students rack up before they're even out in the working world.

Our society has been thoroughly brainwashed into being a consumer society, but one can't consume forever, and such an economic base is ultimately unsustainable. We're going to collapse under our own excesses much like Rome did.

[originalpckelly]

17. I agree, it's pretty insane.

It's all based on a lack of value-judgement, if you don't have to work a couple of 8 hour days to buy the shoes, then you don't understand how overpriced they are. Only when there is direct understanding of how much work went into accumulating that $500 dollars beforehand is there a proper judgement of value.

It's the same when someone wins the lottery or has an unexpected sum of money fall in their lap, there is not direct valuation of that money, so it becomes easy to blow.

[GoesTo11]

10. Solution: Get new cards and use them to pay off your old balances

That way, everybody will only be charged the introductory rate.

:sarcasm:

[Warpy]

11. Outstanding credit card debt is dwarfed by outstanding

mortgage and student loan debt, but what is happening is that people are getting to the point they can only afford to service their total debt load with monthly payments and cope with subsistence. They can't afford to support the consumer economy any more.

Now that is what is going to bring the whole financial system down, the collapse of the consumer market. If that goes, it's 70% of the economy.

That means there will be no demand at all for goods and services and no jobs that once filled that demand, from factory jobs to truck driving jobs to warehouse jobs to retail jobs. They will all be gone and that means even more debt will be uncollectable.

This is the barrel of the Depression cannon we are staring down right now. The one thing that will prevent it is putting more money into people's hands, but where is that money going to come from?

Unless we have a complete about face in this country and in its tax code, we will experience another Great Depression. The credit card debt alone won't accomplish it. That debt combined with depressed wages will.

[originalpckelly]

14. The problem is that it's already happened.

See upthread for my analogy. We're already off the cliff, and we've only just started to realize that we are.

[tavalon]

21. Thank goodness, I quit that little merry go round

I'm happy to be without plastic.

[HCE SuiGeneris]

25. Got to love a politician who tells you not to spend too much...

the antithesis to Chimpy McPhucktard.

[agentS]

26. Wasn't it Chimpy McPhucktard and his Barbie Wife

who ran up over 700K in credit card debt this past year alone, as well as almost losing one of their 8 homes to not paying taxes on time?
The irony here is shocking.

[HCE SuiGeneris]

28. My initial reference was to the idiot son who tells everyone to go shopping

and that working three jobs is uniquely American. But, yes, McCain't is fiscally irresponsible as well. They were years behind in taxes for their home in SoCal. I think they may have had to dip into Barbie's inheritance to create some breathing room. Millions in the bank and they still can't get by without creating a deficit.

[FunkyLeprechaun]

27. Yep!

Although I use my CC for emergencies only (always paid off) so I can't imagine being in CC debt. I'm in the process of paying off my mortgage so I know what it's like to be in that circumstance.

It's a double whammy for some... I've heard of people who used their CC to put a down payment on a house. I really truly think the era of easy money is over.

[sofa king]

29. I wonder if there is opportunity here?

I'm not sure the international finance whizzes have bothered to predict what might happen if they succeed and millions of former middle-class Americans have nothing left to vote with but their feet and guns.

[tammywammy]

33. It makes me glad I have $0 credit card debt

[conspirator]

36. That's why PRIVATE PRISONS will be a booming business. You either slave 80 hours or you go in n/t

[Blue_Tires]

38. indentured servitude n/t

[myrna minx]

40. What's frustrating is that I pay all of my bills on time,

and I've made considerable strides in my debt but now one of my credit lines had doubled my interest rate just because they could. I always overpay my credit cards and was on schedule to be out of debt in 2.5 years. I've had this card since 1997. I've never been late, I'm not maxed out, etc and still they double my interest, just because they can. They're trying to gouge their good customers, to make up for their default customers. It makes me so angry, and I know this came to pass due the help of Citibank Tom Daschle and MBNA Joe Biden. :-(

[EnviroBat]

41. Hmmm, wonder when the "Student Loan" crisis will happen.

I'm so sick of those fuckers. I don't see how anyone who is struggling with all of this other shit can afford to pay the damn things. I'm finding it almost impossible to make a dent in them, and I feel like defaulting on them all together. The fuckers will take my tax refund until I'm dead and gone if I do that. I should have never borrowed the money in the first place. The "education" I received was hardly worth it.