"The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." --Thomas Jefferson

Monday, February 2

Coming out of the Closet

If my reader is still there, no I am not dead. I just haven't been blogging for a couple weeks. A great trip to Southern California with my dad to the granddaddy of all car shows, my parent's new tile floor and the Superbowl...I can't complain. It's really not for a lack of news, political fodder or Olympic athletes huffing bongs. There's been plenty, I just haven't felt like my thoughts have been worthy of publishing on a blog. I don't know what has changed, my thoughts are probably still not worthy but I am going to start up again. Sorry to all you that have enjoyed the past two weeks.

Sometimes I hate to write about politics because it all gets said in the media. I don't like to regurgitate ditto-points or hannitized talking points. Although there is a lot of truth in some of what they say, I don't feel like that's what I want the blog to be about. If you want to hear all about it, you can. If you want to read about something different, then I invite you to check back.



Since my last post about inflation was such a big hit(sarcasm), I will talk about another unintended consequence of the current economic turmoil. And add this to my list of "write it downs". Pres. Obama's massive $1.2 Trillion "stimulus" bill is supposed to jump start our economy with unbelievably irresponsible spending that has as much to do with stimulating our economy as buying a new house has to do with a polar bear's next meal. If passed, it will contribute even further to our fiat money problem and the future liability of our children. As we have all endured the housing meltdown together, there may be another round of mutual suffering ahead. Here is another scenario that could affect the country.



I don't know about you but if tomorrow I woke up without a job, couldn't find a job, fell behind on my house payment I would use the credit that I have acquired to stay current. I think that many Americans have credit cards that they have never used, that are tucked away somewhere without a balance. (Closet Credit) Before I lost my house or filed bankruptcy, I would use that credit to keep my family in the house and food on the table. If things didn't turn around, at that point, you would find yourself both behind on your payments and in credit card debt, with no income. What effect would this have on the economy? Probably a very similar "housing meltdown" effect on the banking industry as they absorb this bad debt and write off losses well beyond their ability to endure.



If you have a mailbox, you know that credit cards were offered and given out more liberally than a mortgage in the Bronx. The math on a 10% interest credit card is massive when you figure the minimum payments on the average debt for the American family. Hundreds of thousands of dollars are transferred over a lifetime. Obviously the banks didn't need any arm-twisting to extend this credit.



Now they are backtracking. I recently received a letter in the mail from none other than our new penny stock banking giant Citi. It said something like this.



Dear Valued Customer,

We have noticed that you have not used our credit card with us for over 2 years. We understand that your banking needs may have changed. We have taken the liberty of closing your account for you.

Love always and forever,

Citibank



(Translation)



Dear Lucky Guy without any debt,

Why didn't you use your credit card? We spent thousands in marketing to get you to sign up! And for what? What- do you pay for things in cash? We are now scared that you will actually use it now and won't pay us back so we are closing your account. Hope you keep your job.

We won't be mailing you again (we can't afford it),

Citibank



These banks that are already over their heads in debt, plummeting stock prices and layoffs realized this scenario better than anyone. So if you're looking for another economic disaster, watch for the closet debt to "come out of the closet". And don't be surprised if picket lines start forming soon thereafter.

1 comment:

Erin said...

seriously? citibank sent out a letter like that? put that one in your journal... insanity. i've had a discover account for years that i haven't used since i was a freshman in college. every so often they call or write, begging for my business. i'm keeping my eye out now that the tables seem to be turning.