A Thaw or a Deep Freeze

After the quick primer on what exactly the credit crunch means to the average person the next question how much pain it will generate.

We know that there has been a stealth credit crunch going on for months with the lock down on HELOCs. Now that credit crunch is moving on. In this article from the Star Ledger titled Thawing out the frozen credit markets the issues are explored. Lets take a look -

The term "frozen credit markets" simply means credit is frozen or very hard to get, even for people or businesses with terrific credit histories. For consumers, that could mean denials on car loans, the lowering of credit-card spending limits or an inability to get a mortgage or open a home-equity line of credit.

For small businesses, it could be the beginning of the end. Without available credit, some businesses won't be able to make payroll (which could mean layoffs), they won't have capital to stock their shelves and pay their suppliers.

"Credit is not a right. It's a privilege. You need to protect it," Adam Levin, chairman of credit.com and former New Jersey Consumer Affairs director, said yesterday. "In good times, it makes your life easier, and in bad times, it could prove to be your safety net."

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Taking money out now is a defensive move for consumers, because yes, your bank really could take away your credit line, even if you haven't done anything to become a greater credit risk. Levin says out of the blue, some institutions may want to review your finances. Based on the bank's analysis, it could lower your credit limit, maybe because your situation has changed, or maybe because the bank's lending standards have risen.

The free money wells are running dry. Credit (read as debt) was once so easy to obtain, and easy to get into over ones head, is getting harder and harder to get. But when you structure an economy to rely on debt these things can happen. When we encourage people to shop to relieve fear and frustrations things will happen. When we encourage this on a nationwide scale with absolutely no oversight and no realization that the bills will one day come due things will happen. Now we are just waiting to see how long and hard the freeze will be.