Credit cards:the coming crunch?

Watch any supermarket checkout in Australia and you will see a string of customers paying for their groceries with credit cards.

That ‘s not recommended personal financing.

But it is, precisely, what makes a new development in the United States quite worrying.

American banks have started curbing their credit card limits.

The New York Times reports that even people with strong credit ratings are being hit.

Will the same thing happen in Australia?

There has been no sign of that occurring here, yet.

But if Australian banks did follow suit, there would be consequences.

The consumer shock would be so great that the Australian economy would, almost certainly, sink into outright recession.

That could happen anyway.

The full impact of the global credit crisis still has to work its way through the Australian economy.

A curb on credit cards, though, would virtually remove all doubt.

The government, clearly, had that in mind,when it guaranteed both bank deposits and interbank lending, earlier this month.

As the Treasurer, Wayne Swan, acknowledged yesterday, the government was aware that there would be unintended consequences, such as more investment funds freezing withdrawals.

But it was eager to avert bigger threats.

And a sudden brake on consumer spending, set off, perhaps, by new curbs on credit cards, was among those potential threats.

We had all better hope that our plastic does not become less fantastic.

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2. Australia better placed than most to withstand the credit crunch:Swan
3. Small business “threatened” by credit crunch