Credit cards are the next credit crunch, Meredith Whitney says

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In an article in the WSJ, Meredith Whitney writes "few doubt the importance of consumer spending to the U.S. economy and its multiplier effect on the global economy, but what is underappreciated is the role of credit-card availability in that spending.

Just six months ago, I estimated that at least $2 trillion of available credit-card lines would be expunged from the system by the end of 2010.

However, today, that estimate now looks optimistic, as available lines were reduced by nearly $500 billion in the fourth quarter of 2008 alone.

Inevitably, credit lines will continue to be reduced across the system, but the velocity at which it is already occurring and will continue to occur will result in unintended consequences for consumer confidence, spending and the overall economy.

Over the past 20 years, Americans have also grown to use their credit card as a cash-flow management tool.

Without doubt, credit was extended too freely over the past 15 years, and a rationalization of lending is unavoidable.

What is avoidable, however, is taking credit away from people who have the ability to pay their bills. If credit is taken away from what otherwise is an able borrower, that borrower's financial position weakens considerably.

With two-thirds of the U.S. economy dependent upon consumer spending, we should tread carefully and act collectively."

Prepare yourself for the "New Economy"

Posted: 3/10/2009 7:33:27 AM by StockMarketFunding | with 0 comments

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Credit cards are the next credit crunch, Meredith Whitney says

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