Sunday, January 25, 2009

Credit Card Withdrawals

So supposedly the US
, and the rest of the world, is undergoing a great "credit contraction" right now.

Since all money is created out of debt, supposedly, this should in theory be deflationary....That kinda makes sense in the short term anyways. It makes sense at least in terms of things that one would ordinarily buy on credit.

However, I guess at this point, not all credit is created equally -- or, some has contracted and some of it hasn't. (Please keep in mind this is all be written by a poorly educated homeless looking man living in South America whose only knowledge of the US is acquired through 'reality' tv and moonbat conspiracy theory websites.)

Short term Business Credit

There was some evidence, at the for a spell there, that this was getting a little difficult to come by. Rates on corporate paper (or the bonds that institutions resell to those who like to lose money) was going through the moon. I hear high double figs for some of the paper coming from fortune 500 companies.

This means that it was getting more and more challenging and expensive for companies to fund today's expenses with tomorrow's earnings. The credit being provided these companies was letting them lever their growth by letting them eliminate the traditional "cash flow cycle" of build, sell, bill, collect, etc. They were effectively financing their short term cash flow needs with short term credit.

The effect of this contraction was (at least what seemed like) a lot of layoffs and downsizing announcements. In this regard one has to operate by looking anecdotally at the stories because the govt unemployment numbers are so half-baked as to be counterproductive.

Mortgage Loan Credit - Real Estate Credit

As far as residential realestate goes, this has been on the wane for some time -- and rightfully so. It's my conjecture that availability of credit in this space wasn't really doing anyone any favors. Since it was EVERYONE getting availability of credit it was just driving prices for EVERYTHING higher, putting people further and further into hock (debt) and ensuring they were further enslaved to the banks to make good on increasingly unrealistic debt repayment schedules. So, remove the credit flow, and we remove the unrealistically high prices -- or at least we start to.

Now, commercial real estate, for whatever reason that has taken a lot longer to start cracking than I thought it would. "Conventional" wisdom states that commercial real estate falls 12-24 months after residential. It is happening at the back end of that range as they are JUST NOW starting to feel some of the pain that the residential guys have been feeling for years.

Anecdotally, there are some big commercial developers shelving projects, and there is some panic about their ability to "roll over" their shorter term real estate development loans. Luckily for the commercial guys, the government has been sufficiently scared out of its wits so it is already meddling in the commercial space and it hasn't even fallen as hard as previous real estate recessions yet. We'll see if that ends bet: no.

Credit Cards and Credit Card Loans

Now, I've HEARD that some people have had their credit lines slashed on their cards. However, most of these SEEM to be peopel who had cards tied to home equity or business credit lines. Mysteriously, I haven't heard of a LOT of the folks that have unsecured credit card debt having their limits slashed in masse.

This is especially puzzzling because the credit card companies and the banks have been in the habit of packaging up this debt, securitizing it, and selling it in a very similar fashion to what the home loan people where doing. And if you think a house can depreciate fast, what's the repo value on plastic surgery or a spent vacation???

It *could* be that I'm just behind the times on this and I haven't kept up with the "haps" in the states, and everyone's credit line has been pared down to meet their ability to repay...but I doubt it.

My Visa Credit Card

I personally have a Visa credit card that last year had a higher limit than my annual salary. How is that safe?

I acquired the card when I had a much higher salary (in the US) and wanted to accumulate airline frequent flier miles.

So now my salary is a shadow of its former self, but my credit line is the same. Do you think this situation is similar to anyone else??? Someone who got laid off perhaps? Someone who worked for themselves as a real estate agent or mortgage broker perhaps? (ironically, part of my current job is to 'sell' credit cards -- albeit they are prepaid credit cards since we don't do credit checks they work more like a debit card)

Student Loans and Education Debt

This is another one like home loans. Good God. Could it be more expensive for people to go to school? What would happen if there were no govt subsidies and no student loans??? Would schools just go away? Would there be no more colleges? Well, let's see....Harvard has been around since what? the 1600's??? I wonder if a year of Harvard cost the annual salary of a "normal" person in 1750. I'm guessing it didn't. And yet, somehow they managed to educate people.. Weird huh?

So if we cut out all school loans, would we have massively empty universities with grizzled professors sitting around in their cordouroy jackets twiddling their thumbs in front of an empty classroom??? uh, no, i'm guessing they'd have to find rich students from abroad (and i'm guessing those will be getting more rare as well) OR they'd have to lower their prices to meet the market's ability to pay.

And, don't even get me started on the credit card companies' lecturous preying on foolish teens in college with their sales promotions during indoctrinations...what a mess we've created. We've willingly let ourselves and our young people become debt SERFs for the banks and monied elite. We were idiots. And, now, in our moment of salvation, when it becomes impossible for the bubblicious ponzi scheme to maintain itself, we ask for the government....the grandaddy of all ponzi-scheme bubbles, to save us from being creating a bunch more public debt, and giving it to the banks...only with the provision that they use it to enslave more people in debt!?!?! uh. i give up.

Debts and Depressions

Those that study debts, depressions, and deflation warn that debt is a KILLER and that it should be avoided at all costs. They recommend wiping out credit card debt...and really, virtually all other forms of debt whereever possible.

I'm Living the Depression

In some ways, we are living the "depression" down here already. My salary has been massively reduced, along with some of my consumption :) But, from a purely fiscal standpoint, I think the definition something along the lines of "a bunch of people experiencing a much lower standard of living".

There's some junk about reduction in GDP too....

But, the reduction in standard of living is usually measured in economic terms. Not, "i live in a town filled with coal dust so my quality of life is low". And, if you exclude immeasurable things that have to do with quality of life or satisfaction, then it's impossible to argue otherwise -- our standard of living dropped the first two+ years we were in Uruguay.

I staved that off the first two years with my mighty credit card and my unrealistcally high credit line -- oh, and some savings as well...Now, we are entering the era WITHOUT credit cards.

I purposely did NOT ask my former roommates to ship my new card down to me here in Uruguay. I haven't missed it....YET...although I haven't travelled yet without it. :)

Credit Cards in Uruguay

Although they are not nearly as widespread there are some interesting things to know about credit cards in Uruguay:

1.) you can get a partial rebate of your IVA tax on your credit card when eating a meal out. This is supposedly for the purpose of encouraging tourism. I'm guessing the goverment has the sneaky "ulterior motive" of making sure that the honest citizens in the food services industry are encouraged to stay honest when it comes to collecting and paying their IVA. a credit card transaction paper trail makes it hard to hide from the tax man.

2.) there are some things that you just can't buy with credit cards -- that you would otherwise expect would be obvious....Or, even though it's against the policy of mastercard and visa, they try to give you differential pricing. This isn't just because they are so cheap they are trying to avoid the credit card service fee, or the merchant account transaction costs...again, it's because they are trying to shirk the (outrageously high) IVA. Where I'm from people drive to portland, OR to avoid an 8% sales tax. So, imagine if the sales tax is TRIPLE that.

3.) they aren't really big on online banking here. in the US you can set it up to pay all your bills automagically. here it's GETTING there...slowly...but, when i went around to change my name onto all the utilities for the house, they all seemed very keenly interested in getting my credit card or my debit card on file to automatically pay the bills.

ok, now, a thing about this...paying bills in UY is HIGHLY inconvenient. basically, because no one has online bill pay (well..nearly no one) AND, there aren't really checks, or a great mail service that comes to your house to grab stuff or has mailboxes everywhere, no one pays bills by mail and check either.

So, what do they do?

they take their bills and go to these money changer/bill payment of which is called "abitab" here.

You hand the guy the him...they deal with it, stamp the bill paid, and presumably take a service fee for it. Supposedly, THESE are a recent invention/breakthrough. it used to be that these places expected you to take your bill, go stand in line at the various entities for the privilege of giving them your money. OBSCENE -- but that is some insight into why people and institutions have ZERO respect for peoples' time here -- cuz i guess they don't either.

ANYWAYS..people like the cable company were very interested in getting me to sign up with a credit card. I guess it's easier for them to autodebit the card (or whatever). This would be expected, right. My problem with the plan was that I have to show up IN PERSON with each and everyone of these agencies and stand in line again when i want to move or get my name OFF the bill. There is no way to cancel by phone or internet or (gasp!) automatically at the end of the year. duh.

So, I wasn't so keen on giving them my credit card details... EXCEPT...they were offering some crazy discounts. So, there must be some serious problems collecting on overdue bills or something. In the case of cable and the alarm company (ADT) it was around 25% discount if I remember right. Plus, it saves golden Lotus from walking to a payment kiosk.

So, because i'm trying to live without my credit card this year, the only challenge will be making sure that my US bank account, which is the one linked to my mastercard debit card is always flush...or I'll be hit with an overdraft fee...which would pretty much negate any savings, huh?

Anyways, enough about me. This post was really just a long-winded way to say, "hey, google, I'm still here"...and if i've managed to give you some insight into living in Uruguay, or a post depression (part II) US, then I've killed two birds with one poorly written blog post.

ciao for now,
Uruguay Guy

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