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Credit Crunch Felt From Wall Street to Main Street

Published 09/19/08 Dustin Ensinger - Print Article
E-mail - editor@economyincisis.org

With the economy in shambles, credit has become increasingly hard to come by. After the tumultuous week on Wall Street, lenders are raising the bar even higher by making it harder for the average consumer to obtain a credit card, much less a mortgage.

Now, many lenders are only willing to deal with customers who have the very best credit. That means consumer spending - which currently accounts for two-thirds of American economic activity - is likely to experience a steep decline.

“We have moved into a decline in consumer spending, which normally happens only in a major recession,” said Ethan Harris, chief domestic economist at Lehman Brothers. He calls the experience “a slow-motion recession in which economic growth will be near zero for an extended period of time.”

In June and July consumer spending reportedly grew. However, the statistics are misleading because Americans didn’t actually buy more, they just spent more on the same products that had increased in price.

Most of the economic activity that previously fueled the economy came from cheap and easy to obtain credit. However, those days appear to have ended. Even Americans with open lines of credit are feeling the squeeze.

American Express is reducing the maximum credit limit for nearly half of its tens-of-million customers. Many home equity lines of credit have been reduced or canceled as home prices continue to plummet.

Source The New York Times:

The latest outgrowth of the housing crisis, the breakdown on Wall Street, threatens to gradually corrode economic activity on Main Street, mainly by disabling the credit on which so many everyday transactions depend — but also by frightening people.

Lenders of all types had already been raising the bar for borrowers, turning away all but the best customers. This week, they became even less willing to part with their money, further crimping budgets and family spending.

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