The latest prognostication from the Credit Cassandra AKA Meredith Whitney is alarming to say the least. It concerns the fact that she sees up to 50% of all consumer credit lines being yanked at exactly the worst time for any prospects of a recovery…which would mean now.
From Forbes (FP):
Whitney discussed credit card lines and how the country’s biggest lenders are sucking liquidity out of consumer wallets. “This is the most interesting topic for me out there, which is credit card lines,” Whitney says. “So, there are about US$4.2-trillion in unused credit card lines. And there are about US$840-billion of used credit lines. In the fourth quarter alone, half a trillion dollars of lines were cut from the consumer — half a trillion.”
This is some scary sh#t. Mostly because for 22 months now, the government has been pushing for a recovery of what? Of demand! Not debt repayment, but spending, that’s what we’ve been trying to get consumers and businesses to do. Oopsies!
Here’s Whitney’s prediction for how ugly the credit-sucking could get:
As Americans face layoffs and pay cuts, they’re turning to their credit cards to make up the difference, says Whitney. These cuts in unused credit lines amount to cuts in compensation. Her gloomiest forecast is for a 50% cut in unused credit lines.
OK, so no credit and no jobs? The US auto industry is probably not coming back, although Detroit South should end up OK. The orgy of wealth and spending from the banking/ financial industry, which Whitney goes on to say was our “biggest export” will also not come back, at least not in its recent form.
You take the employment, spending largesse, material demand and ad budgets, not only directly from these industries, but from all the peripheral businesses that support them, you’ve got an evaporation of spending, no recovery.
Then you pull the credit lines from the only people remaining that actually have the confidence to go out and spend, and you’re pulling the last leg out from underneath the chair, now you’re talking about things getting worse, not better.
In Whitney’s scenario, the discussion about whether or not the recovery is this year or next year becomes irrelevant.
Full Story: Whitney on Banks (Forbes via Financial Post)
Read Also: My Love Letter to Meredith Whitney