High oil prices have caused recessions four times since 1973 and the OPEC Oil Embargo, but the current run up in prices may not bring a recession. While high gas prices hurt everyone and slow the economy down by taking money out of our pockets, this oil boom is demand driven by the growing global economies instead of supply shortages started by the OPEC Cartel.

Given this theory, high prices are caused by economic growth, so while high oil prices are a drag on that growth, they don't mean that it will stop, since a slowing economy will cause the prices to drop back down and help the economy gain speed.

In addition, because of the previous oil shortages, our energy sources are more diversified, and oil prices are largely limited to transportation as most power plants have converted to other fuel sources. In addition, we are now more fuel efficient, creating much more economic activity per unit of energy.

Despite a strong GDP report showing the economy has been doing well, the Fed cut interest rates another quarter point today to 4.5%, which should lower the Prime Rate to 7.5% as the new numbers come out today and tomorrow. This will lower HELOCs, variable rate credit cards, and other loans tied to the prime rate. Mortgages set to reset against the Prime Rate should be lower.

If you have a subprime mortgage set to reset, please review your loan documentation. If you have a teaser rate, which many are, even lower interest rates won't help. With a traditional ARM, they reset to the current rate from time to time, which isn't usually too severe. However, with teaser rates, you might have gotten a 2 year Rate of 6.25% (then Prime - 2%), but have a standard rate (power reset) of Prime + 5% which means that even with the Prime cut to 7.5%, you'll face a reset of 12.5%!

These teaser loans were modeled as loans that would be refinanced or provide a huge premium for the risk, assuming the sub-prime borrowers would manage for two years even if they were risky. Call your mortgage servicing company now if you have a teaser rate, and see if they will convert it to a fixed rate. Many are doing just that to avoid major defaults.

Good luck, but if you don't get screwed on your mortgage and housing costs, a growing economy and lower interest rates should help us borrowers!

Market watchers are predicting another 25 or possibly 50 basis point cut when the Fed meets tomorrow. For those of us with loans tied to the Prime Rate, including most HELOCs and some adjustable rate mortgages, as well as almost all variable rate credit cards, we will see our borrowing costs dropped. Those with savings accounts or money market accounts will see their returns drop.

However, with the holiday season upon us, the rate cut is likely too late to preserve the Christmas Shopping season. While lower rates are nice, since consumer debts like credit cards are prime plus a large spread, a rate cut of 25 or 50 basis points is likely to only save the typical credit card consumer a few dollars each month. While business loans and home equity loans that are Prime plus a spread of between -1% and 3% will seem more noticeable.

Because rate cuts take a while to percolate down through to credit cards (lags of 30 - 90 days are common), it is unlikely that this cut will help consumers out tremendously in time for the Holiday season that begins the end of next month. However, every little bit helps.

There has been hemming and hawing about credit card balances for years, but now there is a concern that an uptick in credit card delinquencies could cause tremendous fall-out in the broader economy. Like the subprime mortgages, credit card debts are sliced up based upon credit score and sold to investors, which is why the amount of credit is able to ever increase without banks getting deposits to loan out. A sharp increase in credit card delinquencies could cause a blow-up in that secondary market, screwing up massive numbers of investors and the economy overall.

Part of the concern is that during the housing boom, consumers ran up massive amounts of consumer debt but were able to refinance their house to lower their rates and clean off their cards. While pundits warned of the dangers of eating their home, consumers felt richer and were able to engage in tremendous buying binges while only increasing their monthly mortgage payment by a small amount. Especially as people re-fied houses that they had owned for many years, stretching out the payments across a new, 30-year term would make it seem like "free money," because their monthly payments would go down even as they stripped out equity.

Even if the credit card picture gets scary for others, you don't have to be a victim. Pay down your balances, get your finances in order, and watch your credit score grow and lower your borrowing costs.

Don't do the crime. Thinking about committing a credit card fraud? According to a report in today's Belleville News Democrat, a Florida man has been ordered to spend 13 years in a federal penitentiary, plus five years on supervised release after his prison term, and to repay almost $12 million which he scammed from consumers who signed up for his bogus credit cards. The mastermind offered consumers a MasterCard credit card for a one-time processing fee ranging from $160 to $500. Consumers who paid the fee were sent a "benefits package" consisting of offers already available for free to the public, along with promotional literature and information on repairing credit. The mailing also included an "acceptance form" for a prepaid card that allows purchases up to a set limit backed by a cash deposit. Send in the form and you could get the actual credit card you thought you were already getting, but for an additional $15 fee. Hold on to your wallets, and watch out for these kinds of phony offers. Read the whole story.

PIN theft is a a major credit card fraud problem. Any unsecured machine that reads your credit card could be stealing your PIN number. This includes ATM's, in-store credit card readers, and gas station pump readers. With the new Credit Card Embedded Authentication Device, you input your PIN into the card itself and the card gives you back a single use number which you use with the machine for your transaction. According to a report by Charlie Sorrel on blog.wired.com, the card recently won a Tomorrow's Technology Today award from Infotech and will be released for general use in November at the annual Cartes & IDentification conference in Paris. Click here for the entire story

The Fed is looking to revamp the rules for credit card disclosures under the Truth in Lending Act. This is the first major overhaul for the Act since 1981. The proposed changes refine the Act's Regulation Z, requiring creditors to give consumers 45 days rather than 15 days notice before changing interest rates, fees or other account terms. It may also prohibit creditors from calling interest rates "fixed" unless such interest rate is fixed for a specific time period disclosed to the consumer. To learn more about these regulatory changes click here to read the article on SeattlePi.com.

Again Florida based Revolution Money is in the news with their new high-tech credit card. According to the St. Petersburg Times in Tampa Bay Florida, Revolution MoneyExchange thinks it is ready to take on PayPal, as well as major brand processors like MasterCard and Visa. Revolution Money has a PIN-based encrypted technology equipped credit card called the Revolution Card, that uses the Internet to reduce fees charged to merchants, and features a free online money-transfer service. The Revolution credit card also has no account number or name and is activated by a personal identification number. Revolution Money has strong ties to AOL, including a majority ownership stake held by AOL founder Steve Case. Click here for more on this story.

Debit cards trigger an immediate withdrawal from a checking account or savings account when you use them. This makes using a debit card equivalent to writing a check or using cash which can be a good thing as it can make it easier to budget and you don't have to worry about big credit card bills at the end of each month. But according to Eileen Alt Powell, a reporter on modbee.com, some experts say there are risks with debit cards that should be heeded. First there are fees and surcharges when you use your debit card to get cash from and ATM or to make purchases at some retailers. Second, debit cards do not have the same federal protections that credit cards do, so you may find it harder to recover money if you are the victim of unscrupulous merchants or fraud. And while the banks that issue debit cards, and card associations such as Visa and MasterCard that process the transactions, have policies pledging the same liability limits for debit cards as for credit cards, this doesn't help you if you are out the cash, until your bank finishes investigating, which can take up to two weeks. Read the full story here.

From a sub-prime crisis (Sub-prime crisis brewing here), to fear of credit and trouble from misuse of credit cards (Little card that gives big bills and blues), to full on credit card fraud (Student makes merry with faked cards; Credit fraud with 92 cards; How people are falling prey to identity thefts!), the people of India are starting to use credit cards more and more (Tech-savvy but wary of using cards online). This is partly because lenders are stimulating use with cheaper credit, but more importantly due to buying power increases as per capita income continues to rise and the market for credit cards opens up. But is it a good thing for India? According to some sources, this rapid credit growth may lead to asset-liability mismatch and cause more ill than good. As an economist I really have to look at these symptoms of rapid growth as the harbinger of economic expansion.

Ever wonder who thinks about making credit card videos? LOL. Well check out these YouTube entries. First there's the couple blending their way out of debt in "Will it Blend? " Then there's the not at all funny credit card cloning waitress stealing credit cards with high tech gear in "The Real Hustle - Waitress Card Cloning". And a really lame credit card offer rant, "Stop Sending Me Credit Card Offers". Don't bother watching that one... And the more insistant, and funnier, though definitely not PC "credit cards for illegal immigrants"... what's this guy's problem??? And the animated original song entry, The Credit Card Song by Old Man Pie, not to mention Dr. Phil calls to activate a Credit Card. Seriously though, credit card videos on YouTube?

Seems like every day there's a new story about someone stealing your credit card info, and with information stored everywhere you shop, online and off, there is plenty of room for credit card criminals to try to make some solid dough. Even our government institutions aren't immune (see our posting October 15, 2007: Holy Government Credit Card Abuse). But watch out you credit card heisters! A US Department of Justice press release announced yesterday (October 19, 2007) that a husband and wife in Houston Texas were under indictment for possessing in excess of 100 counterfeit credit cards and 2000 stolen credit card numbers. The indictment alleged the credit card duo used fictitious drivers licenses with matching names on the counterfeit credit cards and used the credit cards to purchase a cool $1 million in merchandise which the DOJ will force the couple to forfeit. That's a lot of stuff. Why do people think they will get away with this kind of thing. See the full press release on Media-Newswire, here.

Meanwhile, Back East, in Portsmouth New Hampshire, as reported in the Boston Globe in an Associated Press story yesterday, it seems a teenager stole the credit cards of two customers who were shopping in the Portsmouth New Hampshire store were she worked. The 18 year old then used them locally to shop for herself, and, guess what...? She was caught. A duh! Well clearly people doing this at any level are not thinking that clearly, are they?

The Christmas shopping season is upon us.  While the traditional shopping season begins on Black Friday, the day after Thanksgiving, a day that historically was the day when retailers expected to go from losing money (in the red) to profitable (in the black), although that designation is largely historical in an era of cheap Chinese imports and high tech inventory and supply chain management.  With concerns of a spending pull-back fresh in executive's minds, retailers are rolling out many gimmicks to bring in shoppers.  Instead of just relying on sales to bring customers in, Sam's Club is having an even earlier store opening as well as promotions where you can sign up with your cellular phone to receive promotions via text messages.

Enjoy the holidays, but this should be a time to enjoy being with your family, rather than a season of piling on debts you can't afford for gifts that will be soon forgotten.

It's a good idea before you start shopping for a home loan, auto loan, or credit card to find out how your credit stacks up. See the same information lenders look at when they process your application. Find out about your FICO credit score, and see the information that major credit bureaus are storing and sharing with your potential credit card providers. Cardpick has chosen the following top consumer credit reporting service providers to help you monitor your credit as well as to help you protect your important personal information from identity theft.
~ CreditReporting.com ~ This one provides visitors with access to a merged credit report
~ Equifax ~ This one is one of the three major credit reporting bureaus and offers consumers industry leading credit management and identity theft protection products
~ Experian ~ This one is another of the three major credit reporting bureaus and provides a free credit report with a free 30-day trial
~ myFICO.com ~ This one is the only one that shows you your actual FICO score, used by credit card, mortgage, auto loans, and other lenders when you apply for credit
For additional background information, see our posting on October 14, 2007, Credit Score Refresher.

Cardpick will soon expand to include great auto loan providers as well. Are you looking for an auto loan? The following 3 lenders are our recommended auto loan and car loan providers: Capital One Auto Finance; CitiFinancial^SM Auto (part of CitiGroup); Harbor Credit® Car Loan. If you have poor credit or bad credit, we suggest the third of these for finding a car loan with Bad Credit or even with No Credit. Please watch our credit card site and credit blog for updates on these and other great loan products available through CardPick.com.

Every year, economists predict that this will be the year that the American consumer slows spending, causing an economic pull back.  Consumer spending is roughly 70% of the US GDP, plus the majority of our imports, so a decline in consumer spending could send the US into recession and take other countries down with it.  Large American retailers are reporting earnings warnings, so while this could be a blip (more online purchases are usually blamed), it could be a sign of a slowing economy.  What does that mean for us, credit card addicts?

If the economy slows, expect interest rates to fall as the Fed tries to restart the economy, which should benefit us debtors.  It will also decrease credit card purchases, which will put pressure on the banks trying to maintain profit growth.  If that happens, expect two things to happen:

1. Banks start increasing fees even further to maintain their profits -- most of the credit card profit growth has been from fee increases, not interest charges
   
2. Banks will get more aggressive about pursuing customers

The first thing is bad for us, as making a payment late will become more costly.  However, number two will be good for Cardpick users, diligent credit card users that pay attention to their credit cards.  The aggressive pursuit should mean more 0% introductory rate cards, possibly with longer  terms, and more 0% balance transfer offers.

However, if the economy slows, the economic effects can hurt us.  Some people will lose their jobs, raises will be smaller, and bonuses will drastically shrink.  That means that high debt levels that were easy to finance in the free wheeling days of easy credit can become risky.  While interest rates may drop, credit will likely continue to tighten, so high credit people with good incomes will get generous lines with low rates, the rest of us will find it difficult to get credit, and that can make it dangerous to carry credit card debt.  Those that are already struggling but still on top of payments may look into credit counseling programs to help catch up, or other programs to help get ahead of things.

Moving fast will be the key to weathering the downturn, since your options dwindle as your credit score falls.  There era of easy credit gave all of us the access to capital that only the rich enjoyed before,  and most of us apparently abused it.  Good luck with your personal finances.

Bank of America made a press release today announcing the re-launch of the BankAmericard. This early credit card was first launched almost 50 years ago and revolutionized consumer credit. According to the press release, the original BankAmericard credit card was the first nationally accepted bank credit card and heralded the beginning of a new age of consumer convenience and service. See all the Bank of America credit cards available on www.CardPick.com.

$100's of thousands are leaking into the void and our government sector is mired in selfishness and personal consumerism! In our post October 5, Tax Payer Abuse?, we reported on credit card abuse in the Georgia government. Today, according to an op-ed piece published in the Athens Banner-Herald, elected officials are touting their outrage in Atlanta, over this ten day old news, and in none of their expressions of outrage is there any acknowledgment among them that they, or their colleagues in the Georgia General Assembly, bear any responsibility for the abuse of the purchasing cards. At least the governor is reported as saying he holds responsibility as the CEO of the state... How many other states do you think might have this same problem? Read the whole story. In response to Goergia's issues, Georgia Rep. John Heard (R-Lawrenceville) is leading a probe into possible misuse of state-issued credit cards by government employees (reported in the Atlanta Journal-Constitution by journalist Ben Smith. See this article.

According the Federal Trade Commission, a credit score is defined as a numerical value used by lenders, landlords and employers to assess the credit risk of an individual. It is used to predict how credit-worthy a person is, and how quickly they can pay off a loan. The better your credit score, the more likely you will pay off a loan faster and be a lower financial risk to a lender. Credit scores are also called FICO scores after the company that invented them, Fair Isaac Corporation. FICO scores use five different categories to calculate your credit score. Your score is a number between 300 and 850. The higher the numbers, the better your score. Thirty-five percent of your credit score is your credit card payment history. 30 percent is the actual amount of money you owe. Ten percent includes the number of credit inquiries, the number of new credit accounts and the diversity of the types of loans you have. 15 percent factors in the time period of your credit history. A high credit score may qualify you for lower interest rates and save you money over time. Find out your credit score for free, from our recommended provider, FreeCreditReport.com. See credit cards you can apply for that fall into your credit score range.

The U.S. Public Interest Research Group (PIRG) is spearheading an 18-month project to educate students about credit card practices. The effort is set to urge colleges to adopt rules increasing financial education for students, prohibiting access to student lists, and blocking such marketing practices such as gift giving on campus, posters and fliers. PIRG believes college students remain vulnerable to pitches for low teaser rates because they're hemmed in by the high cost of higher education, yet face peer pressure to live a flashy lifestyle when they're on their own for the first time. Miss a payment and the interest rate goes sky high. I found this article by Becky Yerak in the Chicago Tribune. To find out more about US PIRG and the student credit card project, click here.

Some people may feel that credit is loosening. But Jay Hancock of the Baltimore Sun is predicting a wave of credit card defaults, bankruptcies and asset write-offs for 2009. Jay feels the tightening mortgage market has turned banks to credit cards as the next growth business. They're starting to raise credit limits, lower lending standards and increase recruitment. And now that they can't borrow against homes so easily, consumers are using plastic to meet mortgage obligations that they can't handle from their income. Jay tells us that according to a report by Merrill Lynch economist David Rosenberg, as growth in home equity balances has fallen close to zero, credit-card balances have increased at a 17 percent annual rate over the past six months. And the trend, he writes, "is clearly accelerating." A year ago card balances were shrinking. According to the article, the average American now has seven credit cards, and Americans owe more than $500 billion in credit card debt. Household debt levels and debt payments are near all-time highs. And the economy may be in danger of entering recession. To read the whole gloomy prediction click here.

According to a study just released by JD Power and Associates, American Express ranked highest amongst the 10 credit card companies reviewed. The study said that American Express performed better because of its benefits, features, and problem resolution. Discover closely followed American Express performing well in rewards, billing, and payment. As reported in money.cnn.com, the study shows that choosing the right credit card depends on consumer credit card payment habits. Credit card holders fall into one of two categories: those that usually pay the full balance on their card each month, and those that carry a balance and pay it off over time. And, people in each of these groups group select a credit card for different reasons. Read the article here.

After a freezing up of credit during the subprime meltdown, the debt markets for investment grade debt instruments (bonds from companies in good shape, commercial paper -- the mainstay of money funds, etc.) appears to be recovering.  While the debt market is still damaged, with the premiums over the treasury are higher than before as all areas are considered riskier, it appears that the damage is contained.  The corporate bond market is on track to hit a new record, despite the higher interest rates.  As the debt market recovers, the general credit environment should improve, making financing for consumers and credit cards looser.

Even if you think you've seen it all, there is still more to come... In a post on gearlog.com today by Jennifer "Weird Hunter" DeLeo's, an Associate Editor for PCMag.com, Jen reports that Mattel has a new and potentially debt ridden Barbie set: the Barbie Fashion Fever Shopping Boutique Playset, which lets Barbie fans set up their own store and use a "Fashion Fever" faux credit card to pretend to buy Barbie clothes and accessories that come with the set. But when the credit card balance hits zero, the faux store resets the credit card balance so that Barbie can continue to shop. Is Mattel really teaching our children a good lesson here? Shop until your drop... and there's always more credit where that came from. 10 years from now, the savvy guy or gal shopping for a mate should be sure to ask if she owned that Barbie set, and know what's in store (or what's been bought from the store on a real credit card...). Read the full post here if you dare.

If you are on top of your debts, but still have them, using a balance transfer can save you a lot of money. Recently, I received an offer in the mail for a 0% Balance Transfer offer, filled out the application, and received a generous credit line with 0% interest until December 2008, giving me 14 months without interest. As one of our cards accidentally fell into default (missed a payment by a few days when I got distracted, and went from a 7.99% Rate to 29.99%). While I have to pay 3% for the transfer, that is only 6 weeks of interest on my old card. My old minimum was nearly $500, of which $350 was interest. If I make the same $500 payment for the next 14 months, I'll retire $7000 of the $12,500 debt. With the old card, I'd have only retired $1500 to $2000 of the debt. By getting rid of the high interest, I'm going to be able to halve my debt in only 14 months, with only one new card on my credit report. The small ding to my credit for opening a new card should be much less than the cost to my credit of owing $7000 more dollars, plus I'll save $7000.

As we are trying to recover from a few difficult financial years, these balance transfer cards are a huge life saver. Getting rid of our high interest rate cards is key, so that we can struggle through making the payments, and watching the balances drop. If you make the same payments with a nice balance transfer option, you might find that you can pay off ALL of your debt in 18-24 months, just by getting 1-2 new cards over that time.

Think your tax dollars are safe from credit card fraud? Think again! It seems that our government workers have access to credit cards and have charged up a storm... According to the Atlanta Journal Constitution, an audit by the Georgia Department of Audits and Accounts of the State of Georgia found that about 20,000 credit cards were issued by the state, some in the names of individuals, and some kept in desks for use by almost anyone. The audit found that in 2006, a total of about $300 million was charged on these cards, with little review of the legitimacy of the transactions made. Some of the charges mentioned were: $1,300 for diamond band purchased from Amazon.com; $4,000 for laptop computers and digital cameras purchased from Amazon.com; $4,500 for Visa debit cards used to make car payments, to pay for electric bills, groceries, women's clothing and manicures; $5,700 for Wal-Mart gift cards; $13,000 for American Express gift cards, Visa debit cards purchased from the UPS Store, and CVS Drug Store. Holy Cow and Pork Bellies for the masses of government workers who think credit is free. I may have to trade in my credit card soap box for a cushy with credit card government job! Read the full article here.

Evan Schumann of Ziff Davis Publishing reported in today's eWeek.com Retail, that Payment Card Industry procedures have not been effective at stopping massive retail breaches in credit card security. In response, The National Retail Federation is launching a campaign to change the way that credit cards and retailers interact, and force Visa, MasterCard and American Express to change their procedures. David Hogan, CIO of the National Retail Federation was quoted in the article saying, "rather than requiring that merchants keep reams of data—currently required under card company rules in order to satisfy card company retrieval requests—credit card companies and their banks should provide merchants with the option of keeping nothing more than the authorization code provided at the time of sale and a truncated receipt." And, "the bottom line is that it makes more sense for credit card companies to protect their data from thieves by keeping it in a relatively few secure locations than to expect millions of merchants scattered across the nation to lock up their data for them." WOW! Did you realize where your sensitive credit card information is kept? In the corner grocery, 7/11, or Store 24!... Yikes!

Say you heard it hear first, but don't give me the credit. Experian, largest of the major consumer credit reporting agencies, is launching a program on November 1 that allows consumers to freeze their credit reports. Freezing your report is a new way to help prevent identify theft should your personal financial information get lost and you potentially fall victim to credit card and personal identity theft. If you lose your info, you can freeze your credit, and your record cannot be accessed by any agency that might issue a credit card to a thief who has your information. Change your information, and then unfreeze the report. Thanks to PCWorld staff member Kyle Sutton for unearthing this gem in the pcworld staffblog!

Does the Fed Understand Modern Financials

The Fed works on Monetary Policy, basically how banks control the Money Supply.  By shifting interest rates to cause more money to be borrowed, and less held in savings accounts, they encourage a faster usage of money as it moves from less liquid portions of the money supply (savings) to cash that circulates.  The importance of the Money Supply came into modern economic understanding when Milton Friedman's research slowly demonstrated an alternative to the Demand Side Keynesian school of thought that dominated economic theories from the New Deal until the 1970s, when the Supply Side monetary policy came to dominate.

Pimco's Bond Expert, Bill Gross, considered the nation's leading Bond Trader, is concerned that the Fed doesn't fully understand how the growth of private security and derivative based financing changes the importance of the reserve based system controlled by the Fed.  In this view, reserve based banking, where deposits are loaned back out with only a small portion held as banking reserves, is less significant than the modern financial instruments, and the tightening of the credit market is more severe.  In this outlook, the 7-fold velocity of money in the banking system is trumped by the 10-fold to 20-fold private credit markets, and if the credit markets continue to disappear, the Fed will have to do more to compensate or risk a massive economic contraction.

Globalization, a popular boogeyman for economic woes, also has had a dramatic effect on the economy.  The US economy has historically had a low level of trade compared to other nations, simply because the US economy is so large that the Net Exports (normally negative in the US because of the trade deficit) wasn't a such critical factor in GDP.  However, in a globalized economy, every transaction becomes subject to competition, effecting inflation and other parts of the economy.

Perhaps Monetary Policy explains the 20th Century and the "Great Moderation" that the Fed Chief talks about, as the economy matured and stabilized, volatility dropped, recessions became less severe, depressions nearly non-existent.  As stocks became seen as "less risky" in the long run, the Price-Earnings Ratio expanded as the risk premium lowered, and massive wealth was created.  However, in time, the finance system has become more complex, and the ability for the Fed to influence it has lowered, making this credit crunch a very dangerous development.