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There is something to be said for giving nearly everyone a lot of access to credit when the economy and real estate values are improving. If consumers don’t have a ready way to find cash to pay down card balances because their wages are not improving, they can always tap into the value of their homes.

Banks made good money off the interest rates they charge and GDP expansion kept default rates down to a dull roar.

The period in which the average citizen has no access to credit at all may be upon us. According to Reuters, "The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said." Whitney is known for her remarkable pessimism. She is also known for being right.

At this point, most economists see a 2% or 3% GDP contraction in the first quarter of next year, followed by a slow recovery in the second half. If the consumer’s ability to work his way further into debt is cut by hundreds of billions of dollars in each quarter, those GDP estimates can probably be fed through the shredder.

Because the consumer was the engine of the economic expansion of the last five years, he is certainly the only culprit for pushing GDP down. If he has lost access to every line of borrowing available to him and unemployment is hitting with a extraordinarily hard vengeance, the large industries that make up the US economy–autos, transportation, retail, tech, and hospitality–are about to be pole-axed. And, there is no recovery waiting in the second half of 2009. A good 2010 may be a pipe dream.

Banks became their own worst enemies through astonishingly poor management of their balance sheets. Now they are becoming the enemy of the broader economy as well.

Douglas A. McIntyre