Michael on September 10th, 2008
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I just read an interesting article in Fortune Magazine by Geoff Colvin.

You: How interesting was it?

It was so interesting that I would even link to it . . . if I could.

You: You can’t?

Nope.

You: Why not?

I found the table of contents to the magazine online, but with no links to the actual articles.

You: Why would a magazine have articles that can’t be easily read online?

Why does Radio Shack ask you for phone number when you buy batteries?

You: That’s Kramer’s line.

Indeed, a classic one, at least in my book.

You: Beyond Paycheck to Paycheck?

No.  I wasn’t being literal just then.

You: Sometimes it is hard to tell.

Sorry about that.

You: For real?

For real.

You: This is a long introductory conversation, don’t you think?

Probably, but –

You: Risky, no?

Not if you’re still reading.

You: Point taken.

Anyway, this Fortune Magazine article which, while we were talking I just found online is about how “Our easy access to plastic is about to dry up – and with it our ability to fake living the good life.” Mr. Colvin makes a compelling case that Americans have been able to consistently increase their standard of living despite limited (if any) increase in real wages.

You: How do we supposedly do that?

Simple: by spending more than we make.

You:  But you can’t really do that forever, right?  Don’t you eventually have to “pay the piper?”  I mean, you’ve got to pay the bills eventually.

Have you paid the piper yet?

You: This isn’t about me, I never talked to this Colvin fellow.

Okay, that’s your pass.  Colvin argues that, as a society, we’ve been quite resourceful in funding our lifestyles above our true means, first by borrowing against (or outright use of) the increasing value of our stock portfolios during the stock market bubble.  Then, after that bubble burst, we borrowed against the equity in our homes until –

You: That bubble burst.

Exactly.

You: So now what?

Credit cards.

You: Credit cards?  But credit cards aren’t an asset.

Right.  There’s nothing “there” to borrow against. No chance exists that your little plastic credit cards will go up in value, let alone by enough to offset the amount people borrow in their use.  Furthermore, use of credit cards has exploded recently.

You: Why do you say that?  Most of the people I know who have credit cards have had them for a while.

Now people are using those credit cards more and are more likely to be carrying over an ever increasing balance.

You: Almost like a bubble in credit card usage.

Cute.  But also accurate, because now the credit card debt bubble appears to be popping.

You: What?

Credit cards debt is now being traded for far less than it was formerly.

You: Wait a second – how can I trade my credit card debt?

So, you do have some?

You: Hypothetically.

You can’t trade your credit card debt.  But the banks that you (and/or your friends) borrow from – they buy and sell this debt with other financial institutions.  Now each dollar of credit card debt owed to the bank is worth less than it used to be because the banks expect that a lower percentage of this debt will ultimately be paid back than has been the case historically.

You: So what does this all mean?

Not surprisingly, credit card companies are beginning to reign in the amount that they will lend to cardholders.  This means that we’ll have less ability to borrow.

You: So where will people go next to borrow money they don’t have so they can continue to live a lifestyle that would otherwise be unaffordable?

That is the next conundrum. Mr. Colvin suggests that perhaps we may finally have to live within our means.

What a concept.

Here are two other takes on the matter:

The Death of the Credit Card Economy

Credit Cards: Not Dead Yet

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