From, http://www.nakedcapitalism.com/2008/12/banks-supposedly-will-cut-consume...

You have to scroll downa bit, but this a letter received by Yves Smith (the host blogger) from an AMEX customer. And this is obviously from someone whose got a good job and spends a lot of money.

I am writing to tell you about my sincere disappointment with my recent service from American Express. I have been an American Express card member since 2003. I put almost everything on my Amex. I charged and paid-off $91,000 dollars on my card in 2007, it was an especially big year because I got married. So far in 2008 I have charged and paid off $75,000 or so on the card, I got a new job this year and relocated... This is an average of about $7,000 per month in charges and payments over the past 2 years I would think this would make me at least a decent card holder.

On December 12, 2008 the credit limit on 2 of my American Express Cards was cut from a total of $50,000 (way more than I needed, since I rarely carry a balance) to $3,200 (way too low, especially in December), this is a 95% cut and about 1/3 of my average monthly charges / payments over the prior 2 years.

The way to look at this is, how many people are being affected by this? How much combined purchasing power does this remove from the global economy? It affects each and every sector. If Joe Average's credit is curtailed or stopped his purchasing ability to buy cars, computers, big screen tv's etc falls through the floor. That in turn affects the global economy, export growth starts slumping in China, Japan, Korea, Germany etc. Which makes the global economy worse and thus banks will curtail more credit.

In short a vicious self reinforcing cycle. What makes this credit burst so bad is that the global economy is uttery dependent on credit, people hardly buy things with cash and most global players are to the leveraged to the hilt.

What is most frightening is what happens when natural gas companies, oil companies and alternative energy companies are forced to work from cash flows, no access to credit at all? I read that Rockman said his company has been forced to cut their budget from 1.4 bn to 700 million. That's half! And the worst lies ahead. Peak credit will only accelerate the downslope of peak oil.

The consumer simply won't be able to afford much oil and the leveraged producers simply won't be able to survive. It is a possibility but this crisis is getting exponentially worse, but could oil production plummet from 75mn to 60mn or less in one year due to lack of credit?

It's hugely deflationary and the potential is devestating. :-(

HELPP!! Ilargi, come to our rescue!

Is this a parallel universe, or what? http://www.celent.com/PressReleases/20081210/WhatCreditCrisis.asp

What Celent didn't consider, http://seekingalpha.com/article/110447-what-celent-didn-t-consider

As the chart indicates, bank credit has risen. OK. More importantly, where has it gone? One answer is to those that were granted credit on good terms during the credit boom and, in anticipation of a tougher credit environment going forward, tapped into these funds.

This is still lending, but it is not the kind of lending that satisfies the exact statements of politicians.

This crowds out those with less than perfect credit and makes their financing either incredibly expensive or impossible to obtain.

The article goes on

Even if some of the credit markets were operating under "historical norms" in terms of the flows of credit, they must also consider the fallout from the increasing cost of credit. If a company that needs debt to finance themselves (cough GMAC cough) can only tap it at an "historical" cost, is that really going to do them any good? The government was, yet again, the only entity in position to provide some relief for these borrowers. Some have failed, some have been saved, but by doing nothing, I can only believe the former would significantly outweigh the latter.

The cost of credit is well above normal, look at the TED spread, Junk Bonds, Commercial Paper markets that can't function without FED intervention, A2P2 spreads are at records(This is the spread between high and low quality 30 day nonfinancial commercial paper). Big companies also tapped all their credit lines and parked the cash into bank accounts in case their lines are shut off.

3 month Treasury yields are close to zero, most of the TARP money ended up back with the FED.

I refuse to use a debit card. It simply does not provide the protection a credit card does. If a credit card is stolen and used fraudently, it's the bank's money that's lost. If a debit card is stolen, it's your own money that's lost.

Sure, they might give it back to you eventually...but your bank account could be frozen for weeks or months while they figure it out.

With a credit card, you're simply issued a new account, and the old one is no longer your problem.

And don't pay at the pump with a debit card.

You don't travel as part of your job do you? See above. If I didn't travel, I would still want a credit card for Internet purchases. I don't want some hacker stealing the mortgage or grocery money because these things take time to sort out. I also refuse to give anyone access to my bank account like health clubs, but some require it or a credit card. They are a very useful buffer between what you can live without and what you can't.

"Has anyone thought of doing away with credit cards?"

Yes. I know a number of families that did this voluntarily. And you are right, there was "cry(ing) a lot during the transition."

And I would not be surprised to see virtually everyone doing without credit cards within a few years - inspite of their advantages - whether they like it or not. And like you say, there will be a lot of crying.

Has anyone thought of doing away with credit cards?

Yes. I got rid of mine. The only reason I got a CC in the first place was because one was required for taking a vehicle into Mexico. It was handy for ordering online, I discovered, and so long as I paid off the monthly balance it didn't cost anything to use it. For many years I paid off the balance at the end of each month. But then I financed a trip to Brasil with my CC, and used it to pay for some unexpected auto repairs soon after I returned, and found myself forced to carry a balance for awhile. It really burned my ass to pay interest, so when I paid off the balance, I destroyed the card. I don't miss it. Neither do I like the idea of there being an electronic trail of my purchases and whereabouts. "Neither a borrower nor a lender be" is very sound advice.

Euro,

Ever considered they don't want to?

Besides that, printing $90 trillion would be the surest way to collapse the entire enchilada.

the worlds largest centralbankers, who have spent years in learning to avoid the desaster of the 1930's?

No, they've spent years claiming this. Consider that they may have engineered the Great Depression.