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The MASTERPLAN Part 2: Credit Cards, Consumer Credit & Endless Economic Growth (with podcast)

by Marquette Turner

in Features, Podcasts, Special Reports, The Masterplan

PODCAST [podcast]http://marquetteturner.com/audio/090223_Masterplan2.mp3[/podcast]

When we look at Consumer confidence and listen to the politicians discussing the need for consumer confidence to return and thus consumer spending I cannot help but be concerned. Consumer credit has exploded in the last twenty years and not all of this is good.

In Australia credit card interest rates remain at obscenely high levels and banks have handed out credit cards and increased credit limits at alarming rates. This is both a regulatory failure and a yet another example of banks using predatory practices which are now catching up with them.

Australians owe approximately $45 billion AUD on credit cards and is ranked as the third most indebted nation in the world when comparing total household debt to Gross Domestic Product (GDP), behind the UK and the US. Household debt in the UK represents 240% of GDP, 180% in the US and over 174% in Australia.

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Who has not received a letter in the mail offering a credit card with a pre approved limit if you just return a form by a certain date? Who hasn’t seen a television commercial offering credit cards with low introductory interest rates on balance transfers (except for cash withdrawals which instantly are charged at the top rate) to entice people to further increase their personal debts?

I recently saw a TV advertisement from Citibank (In Australia) offering a credit card to people with a 2.9% introductory rate for balance transfers. The small print at the bottom of the screen indicated that cash withdrawals were exempt and would be charged at the full rate – a staggering 20%!

These practices are predatory, immoral and ultimately have the biggest impact on those who can least afford it – they are meant to appeal to those in most need. No person with the financial capacity to ignore the so called offer would respond to it and Citibank knows this. It is therefore no surprise to me that Citibank has created such a mess for itself and taxpayers in the United States. It is little wonder they have relied upon and used hundreds of billions of taxpayer dollars and will require more if they are to continue to trade.

So when looking at re-igniting consumer spending we need to look at it on two levels. Firstly consumer spending with cash and consumer spending on credit. If we fail to break consumer spending into these two basic categories we make the mistake of deluding ourselves that all is ok and simply put off the inevitable.

Many people are over-committed financially with personal loans and credit card debt (apart from mortgages on homes) and if they continue to spend at the same rate they will be forced into bankruptcy.

Consumer spending habits must change for the economic recovery to be long lasting and value must be placed on spending wisely – not on credit cards to further increase personal debt and artificially continue economic growth. We must look deeper at the indicators we are being presented with – increased consumer spending could ultimately be disastrous without taking the credit factor into account.


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Thus it may be necessary for a period for the economy to shrink – it may be a fact of correcting economic growth which was too fast or built on poor foundations. Growth for the sake of growth is silly and sometimes we need to take stock of where we are and consolidate.

In 1997 total debt in Australia (including Government and household debt) was just $700 billion AUD. It is now a staggering $3.4 trillion AUD, which represents a massive $110,500 AUD for every man, woman and child in Australia. The former Howard Coalition Government did indeed pay down the public debt, but allowed private debt to soar. This is a problem we do not hear Prime Minister Rudd or Opposition Leader Malcolm Turnbull discuss – they must!

Servicing this debt will only become more difficult as the dollar devalues – the problem is real and when we consolidate and start the process of repair we will not grow at all. If we do we will be growing through debt and correcting mistakes of the past will take years, not months. Future measures of growth need to be more accurate and sensitive to allow for better decision making and earlier detection of potential issues.


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Summary Thoughts

Consumer confidence and the subsequent increase in consumer spending is only a small part of the overall equation. It is vital to look at consumer spending in terms of cash and credit to ensure we don’t exacerbate the situation to a point where we allow the mess to worsen. We have some work to do on repairing our level of household debt and growth for the sake of growth is dangerous and has wide ranging implications. To be ranked the third most indebted nation in the world (as discussed above) is a problem we cannot ignore.

Michael Marquette


NEXT: The MASTERPLAN Part 3: Government Debt

PREVIOUS: The MASTERPLAN Part 1: My “Solution” to the Economic Mess

{ 7 comments… read them below or add one }

Mat Packer February 24, 2009 at 6:31 am

ANZ have actually sent me 3 card offers in the last month, also my old credit card provider (before I paid it off and cancelled it) has been calling and offering to reinstate my account. Guess who it is, good ol Citibank.

Apparently Citibank is now the provider for the credit cards at Bank of Queensland, we currently have our home loan through them and a small personal loan which we have no problems servicing, however it does worry me that Citibank is in bed with BoQ now and if our home loan wasn’t fixed for another 2 years I would probably take my loan elsewhere.

I think one of the biggest problems young people have at the moment is that it’s so easy to get a credit card, and quite difficult to get a personal loan. I’ve heard from a number of younger friends that when they were looking at buying cars recently companies like GE Finance and Citibank would pre-approve them a 20k credit card before a personal loan, and they would be encourage to take the card because they could have it straight away, whereas the loan was subject to application fees and all sorts of other ridiculous things. This is a complete and utter predatory act, preying on young people and encumbering them with massive debt before they even turned 20.

That’s just morally bankrupt in my view.

I’d like to see something along the lines of Fight Club happen, reset everything to zero and make the playing field even again. If you’re then stupid enough to get into credit card debt now that you know what happens, then tough luck.

Mat Packer February 24, 2009 at 6:31 am

ANZ have actually sent me 3 card offers in the last month, also my old credit card provider (before I paid it off and cancelled it) has been calling and offering to reinstate my account. Guess who it is, good ol Citibank.

Apparently Citibank is now the provider for the credit cards at Bank of Queensland, we currently have our home loan through them and a small personal loan which we have no problems servicing, however it does worry me that Citibank is in bed with BoQ now and if our home loan wasn’t fixed for another 2 years I would probably take my loan elsewhere.

I think one of the biggest problems young people have at the moment is that it’s so easy to get a credit card, and quite difficult to get a personal loan. I’ve heard from a number of younger friends that when they were looking at buying cars recently companies like GE Finance and Citibank would pre-approve them a 20k credit card before a personal loan, and they would be encourage to take the card because they could have it straight away, whereas the loan was subject to application fees and all sorts of other ridiculous things. This is a complete and utter predatory act, preying on young people and encumbering them with massive debt before they even turned 20.

That’s just morally bankrupt in my view.

I’d like to see something along the lines of Fight Club happen, reset everything to zero and make the playing field even again. If you’re then stupid enough to get into credit card debt now that you know what happens, then tough luck.

Mat Packer February 24, 2009 at 4:31 pm

ANZ have actually sent me 3 card offers in the last month, also my old credit card provider (before I paid it off and cancelled it) has been calling and offering to reinstate my account. Guess who it is, good ol Citibank.

Apparently Citibank is now the provider for the credit cards at Bank of Queensland, we currently have our home loan through them and a small personal loan which we have no problems servicing, however it does worry me that Citibank is in bed with BoQ now and if our home loan wasn’t fixed for another 2 years I would probably take my loan elsewhere.

I think one of the biggest problems young people have at the moment is that it’s so easy to get a credit card, and quite difficult to get a personal loan. I’ve heard from a number of younger friends that when they were looking at buying cars recently companies like GE Finance and Citibank would pre-approve them a 20k credit card before a personal loan, and they would be encourage to take the card because they could have it straight away, whereas the loan was subject to application fees and all sorts of other ridiculous things. This is a complete and utter predatory act, preying on young people and encumbering them with massive debt before they even turned 20.

That’s just morally bankrupt in my view.

I’d like to see something along the lines of Fight Club happen, reset everything to zero and make the playing field even again. If you’re then stupid enough to get into credit card debt now that you know what happens, then tough luck.

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card consolidate credit October 8, 2009 at 6:22 pm

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card consolidate credit October 8, 2009 at 6:23 pm

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