Revisiting Meredith Whitney’s WSJ Op-Ed “The Credit Crunch Continues”

November 17, 2009 at 3:29 pm  ·  Category: Macro Economics

Anyone counting on a meaningful economic recovery will be greatly disappointed.  How do I know?  I follow credit, and credit is contracting.  Access to credit is being denied at an accelerating pace.  Large, well-capitalized companies have no problem finding credit.  Small businesses, on the other hand, have never had a harder time getting a loan.

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I believe that we are only in the early stages of the second half of this credit cycle.  I expect another $1.5 trillion of credit-card lines to be removed from the system by the end of 2010.  This includes not only the large lenders reducing exposure but also the shuttering of several major subprime credit-card lenders.

“The Credit Crunch Continues”, Meredith Whitney, The Wall Street Journal, October 1.

Meredith Whitney had an important op-ed in the October 1 issue of The Wall Street Journal.  In it she argues that small businesses are essential to economic recovery and that their access to credit is being notably reduced.  The argument goes like this:

  • Small businesses employ 50% of the nation’s workforce and contribute 38% of GDP.
  • The government programs are helping the mammoth banks and institutions, but not small businesses.
  • Credit cards are a crucial source of financing for small businesses.
  • Over the last 2 years, credit card lines have been cut by over $1.25 trillion and 10% of all credit card accounts cancelled.
  • Another $1.5 trillion in credit card lines will be removed from the system by the end of 2010 as a result of large lenders reducing exposure and the shuttering of several major subprime credit card lenders.
  • The Credit Card Accountability, Responsibility and Disclosure Act will have the unintended consequence of credit card issues reducing credit lines.
  • All of this will put a damper on small business, an essential component of the economy

Source: “The Credit Crunch Continues”, Meredith Whitney, The Wall Street Journal, October 1.

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