Thursday, January 8, 2009

Maxing out the national plastic

Got credit card problems? Then you may know more about global economics than you think.

There's been a lot of posting on Get Rich Slowly and other personal finance blogs lately about a growing tendency among credit card issuers to clamp down on dormant credit lines. Those include the cards they previously mailed to us but that we haven't used much or are saving for emergencies.

Cutting off unused credit is good for the card companies because it protects them from having to make potentially shaky loans if we tap our emergency lines. But it's rougher on the rest of us because if we do borrow, we may end up paying higher rates to use more of the smaller lines we have left. Drop just one notch on your credit score and you may end up paying as much as maybe $20 to $40 or more a month on a house or car payment, according to

The U.S. appears to be headed into a similar jam, suggests a business story in The New York Times. Briefly, the U.S. will need to borrow some unknown number of trillions of dollars in the next several months to help restart the flow of credit in the U.S. But China, which loaned the most by buying Treasury bonds to bail us out of our recent jams in the past, is sounding stingier this time around. The Chinese have economic problems too and are thinking about an economic stimulus package of their own.

Our current national debt currently runs to between 40 percent and 45 percent of our total economic output and Congressional Budget Office researchers look for it to top 50 percent
when the federal fiscal year ends in September.

Around the kitchen table, racking up a debt to income ratio of more than 38 percent can kill your chances for getting a mortgage or some car loans. So what do you suppose credit scores are on a trillion dollar loan application?

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