Credit card holders hold the trump
Lorne Peasland
Will credit card holders pay off their card debt, or continue to pay the high cost of interest cards charge? With they really assist in recovery of the economy, in spite of terrorism-related cocooning? Will they hold their trump, or spend it?
In a way, credit card holders (users and abusers) hold the trump card in the game of national and international economic growth and prosperity. The money they owe is in the trillions, not the billions, and that makes them a heavyweight contender in the world's economy. The problem is, they're unorganized and manipulated.
Current bad news about the economy aside - it's just slowing down and getting reconfigured, not stopping and reversing, or collapsing - debt watchers (the banks and their bankers) are concerned that a serious change in how the economy works may be about to happen, and they have less control over that change than they'd like. But they do have control over credit cards, and they encourage consumption based on the value of those credit cards in order to maximize their income. It's simple really. "Hi, my name's Big Guy, and I have so much money I can't count it. In fact, it costs me more money in lost time to stoop down to pick up a hundred dollar bill that falls out of my pocket than it does to keep walking. You have no money, but I'll loan you some, with this card. Go out and get what you want, you can pay me back a bit at a time. You only have to pay me 1% a month, or maybe 2% - that's not much, is it?"
If people who are paying the high rates of interest on credit card debt were to suddenly pay off that debt and not assume any more, the infusion of cash into the world economy would not only stimulate business by causing money reserves to be loaned out to business (remember free enterprise and its effect on peace?), but it would strengthen financial institutions at a time when they're being told to put aside more capital to protect themselves from bad loans which are the result, not of Sept.11, but of an overheated (and overblown by stock promoters and media) economy..
Some banks are putting aside more reserves, and some are saying they anticipated the problem, six months ago, and have plenty of reserves. Canada's CIBC, for instance, increased it's loan reserve significantly while reporting a daily profit of more than $6-million. Then they announced they were laying off 2000 people, many of which are in middle (or diddle") management and higher. A credit crunch is coming, regardless of what reserves and extra cash the banks want to loan out. The reason? There are fewer "creditworthy" customers out there, after all those layoffs.
The three main national bank regulators in the U.S. - the Federal Reserve, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation - just released their shared annual report, which examined the liquidity of the U.S.'s biggest banks - many in that circle of the largest in the world. Their report, which only considered figures up to and including June, showed double the amount of bad loan commitments compared to the previous year. The report also predicted another increase in bad loans for at least another year.
So rates are coming down, and people are being encouraged to spend, spend, spend. And that means assume debt, assume debt, assume debt. Assume. We all know what the first three letters of that word means. Consume. We all know what the first three letters of that word means. And who's sending out the message? Government and financial institutions.
What's wrong with save, save, save? Credit card debtors - usually those who can ill afford the interest but who can't pay off the outstanding balance - have to break the habit and renegotiate all their debt to the lowest possible level of interest with the maximum ability to accelerate their repayment of that debt without penalty. And keep the whole thing at less than 30% of gross income. The truth of the times is upon us.
Lorne Peasland is a former advertising agency owner and national media consultant, the founder and past-president
of the Canadian Home & Micro Business Federation, and author of "Influencing Public Opinion - A Communications
Primer For Political Candidates, Community Activists, and Special Interest Group Spokespeople" (ISBN 0-9697364-0-1).
He is a home-based marketing consultant, writer and speaker, and publisher of HomeBizNews, a syndicated Web-based weekly for entrepreneurs. He can be contacted through either of his web pages at
http://www.accept.ca/homebiznews/lorne.html or http://www.accept.ca/homebiznews/pms2.html, via e-mail at
lorne@pacificcoast.net., or by phone at 250-708-0250.
