While there plenty of bad news gathering momentum out there, the most frightening picture is without a doubt The Ticking Credit Card Time Bomb:

For those holding out hope that the American economy can miraculously avoid a long and deep recession consumer credit is often viewed as the wonder drug that can cure all manner of economic ills. As such, this week’s report showing $15 billion growth in consumer credit was widely heralded as proof of America’s economic strength and resilience. However, we are now suffering the after effects of too much debt, and our salvation cannot be found in more of the same.

Credit card debt, which now stands at whopping $957 billion nationally (approximately $3,000 for every citizen) has, in recent years taken on a different role in American life. While in the past cards were used primarily to purchase big ticket items, spreading out costs over many months, they are now increasingly used to bridge the gap between cost of living and the diminishing purchasing power of Americans who have been taxed mercilessly by inflation. By buying with available credit instead of unavailable cash, consumers are not simply postponing the pain of higher prices, but compounding it by adding interest to the cost of everyday purchases. In addition, as home equity credit is now unavailable to fund large purchases, many consumers are turning to non-deductible, higher cost credit card debt as the last remaining life line. As such, credit card debt compounds steadily, and for many borrowers, becomes increasingly impossible to pay down…

It is not just us at In Debt We Trust who are getting creepy feelings. Last week on CNN.com there was this article revealing the appalling state of the middle class.

Barely surviving on credit cards. No longer able to turn their homes for cash, Americans are increasingly using plastic to meet their basic living expenses. But many can’t afford to pay the bills… “Other sources of money for a lot of Americans are drying up,” said Dick Reed, regional counseling manager of Consumer Credit Counseling Service of Greater Atlanta, who sees more clients with mounting credit card debts these days. “Consumers just don’t have a place to go to get money. They are digging themselves into a deeper hole not only to pay for normal living expenses, but to make minimum payments on outstanding debt.”…
For many people, racking up credit card debt is not a choice they want to make, experts say. Not too long ago, they could have tapped into the equity in their homes through loans or lines of credit or refinancing. But this debt, which usually carries lower interest rates, is no longer as widely available with the collapse of the housing market. So, faced with soaring costs for food and fuel, people find they must charge more to make ends meet…. more

Keeping an eye on the big picture: The global slump of 2008-09 has begun as poison spreads

Diane Vazza, S&P’s credit chief, says defaults are rising at almost twice the rate of past downturns. “Companies are heading into this recession with a much more toxic mix. Their margin for error is razor-thin,” she said. Two-thirds have a “speculative” rating, compared to 50pc before the dotcom bust, and 40pc in the early 1990s. The culprit is debt. “They ramped it up in the last 18 months of the credit boom. A lot of deals were funded that should not have been funded,” she said. Some 174 US companies are trading at “distress levels”…..

“My guess is that many Americans continue to run up massive credit card debt because they have little intention of paying it off,” said Peter Schiff at Euro Pacific Capital. Quite. Thankfully, the Fed’s monetary blitz has averted a depression. Emergency lending under the “unusual and exigent circumstances” clause of the Fed Act - the nuclear Article 13 (3), unused since the 1930s - has put a floor under the banking system.

There will be no “reset Armaggedon” as rates vault on honey-trap mortgages. Drastic Fed cuts - to 2pc from 5.25pc in September - have conjured away that disaster, at least. One dreads to think what would have happened if Fed liquidationists (Plosser, Hoenig, Fisher) had prevailed, as they did in 1930 - and still do in Euroland, where Germany’s Axel Weber holds sway, and nobody of sense dares lead a mutiny…. more