Reply #4: I think that's a big assumption... [View All]

[punpirate]

... and here's why (just my suppostion based on the numbers): In the bad old days, credit cards were limited to consumer goods. State by state, those regs were rewritten to allow credit cards to pay for nearly everything--utility bills, groceries, gas, etc.--even bail bonds.

Annual credit card balances are running at an annual rate of about $2.1 trillion. Consumer spending is roughly two-thirds of the entire economy, or about $7 trillion. A lot of that $2.1 trillion is going into continuing debt. As real wages continue to decline slightly, it means those balances are going to stay high, simply because many need credit to maintain their way of life. This situation is going to get worse as the job situation continues to deteriorate.

The other factor is, I think, that the people most likely to have the need to avail themselves of bankruptcy don't have a clue about what the changes will mean in their lives. Without that foreknowledge, they won't be cutting back on credit card use, and those that don't perceive any need to cut back will get surprised by the changes in the law.

So, in short, the people here may be well aware of the problems associated with unleashing the credit card industry, but the greatest portion of the public doesn't.

Now, if there's a contraction of credit card use, you're right--it will contract consumer spending somewhat. When 30% of consumer spending goes onto cards, it can't help but do so. But, and this is the big qualification--I don't think the public can afford to do so.

The real problem in this issue is that bankruptcies are going to go up--all the signs point to that. The largest percentage of those people will now be shunted into Ch. 13 payment plans which will suck out disposable income from their pockets and into the credit card companies. That money doesn't circulate in the community. It's just gone. With Ch. 7 plans, yes, those people can't use credit for some number of years, but what money they earn after a settlement goes to local goods and services. Under this new law, it disappears into the credit card companies' receipts. That will have a profound effect on general economic health.

Cheers.