Looming Crisis: America’s Credit Card Debt
By Paul C.Wright
Global research, March 03, 2010
March 03, 2010
Theme: Global Reseach
When the U.S. economy began to melt down in 2007 and entered a rapid period of decline in 2008, all eyes were fixed on the subprime mortgage crisis. Though the mortgage crisis, triggered by spurious lending practices and unprecedented risky investment bank practices, was undoubtedly the dominant factor affecting the American consumer in 2008, credit card debt and default was also making a contribution to the deteriorating economy and collapsing standard of living. As the subprime mortgage crisis accelerated, the increasing number of people falling behind on payments or defaulting on credit card debt was largely ignored by the media, with only a sporadic story or two being aired or printed by the major news outlets. Stories finally started receiving vastly more media attention in 2009 as the problem became too large to ignore. Credit cards, once a status symbol and the prized possession of the American consumer, had quickly become the bane of the American consumer. Credit cards, while omnipresent now, were not always widely used by consumers to make purchases. At one time the credit card was seen as a novel and trendy idea, with a limited number of cardholders who were in effect members of a special club. Now, credit cards are viewed as essential purchasing tools that everyone must have, for status, transactional ease, and even necessity in some instances. Many purchases, particularly those related to travel and lodging, absolutely require credit cards. The overwhelming majority of internet vendors require a credit card for the purchases. In essence, it is nearly impossible not to have a credit card in the 21 st century. The credit card has come a long way in its short history. Many people today may think that the credit card rapidly and dramatically transformed American society. In fact, it did not. The explosion of credit offers to adults and minors alike from the mid-1970s until the bursting of the credit bubble in 2008 may lead some to believe that the credit card was an overnight phenomenon. It was not. Credit cards did not burst onto the American financial scene in the same dramatic way that pre-packaged sliced bread did in the 1930s. They did not catch on with consumers in wildfire fashion after an enlightened Eureka moment as did 3M’s “Post-Its,” which were in high demand and selling all across the United States within three years of 3M figuring out how to mass produce them. Credit cards found their way more carefully and slowly onto the world stage and, nearly 60 years after their creation, contributed to one of the largest debt bubbles in history. This massive debt bubble, inextricably linked to the housing market bubble, began to unravel in 2007 and is now sending America into one of the worst economic downturns since the Great Depression. This downturn threatens the prosperity of generations to come and will likely result in a permanent reversal of fortune for the United States unless it takes substantial steps to ensure the survival and relative prosperity of the middle class  – America’s largest socioeconomic group, and the engine that drives America’s economy through consumer spending. Since consumer spending accounts for about 70% of the U.S. economy  , and the middle class is responsible for the bulk of consumer spending, the U.S. will undoubtedly experience painful contractions for the foreseeable future. Though credit cards were slow to catch on after their creation in 1949, thirty years later Madison Avenue would be put to work to help drive the expansion of Americans’ use of the cards. There was a lot of money to be made by collecting fees for debt creation and debt service, and the largest banks wanted in on the action. Clever marketing campaigns led the public to believe that it could access luxury items and vacations that were once thought to...
References:  Marquette National Bank of Minneapolis v. First of Omaha Service Corp , 43 U.S. 299, (1978).
 The act is an amendment to the Consumer Credit Protection Act, 15 U.S.C. 1601.
 The Dallas Morning News Pamela Yip column, “Upcoming credit card changes can help you take charge,” McClatchy – Tribune Business News , Washington, August 15, 2009.
Please join StudyMode to read the full document