The Feds Aim to Expand Credit

A new program by the Federal Reserve is aimed at making it easier for consumers to get credit cards and auto-loans. These loans might not necessarily be at lower interest rates but should be easier to obtain. The goal of the Fed is obviously to loosen credit markets and once again spark consumer spending. Next month the U.S. central bank will begin offering up to $200 billion in loans to investors that have triple a rated securities backed by new consumer loans and small business loans as well. The lack of credit available for both consumers and businesses has devastated our economy. In order for our country to come out of this recession we will need to make credit available again for consumers.

Credit card companies have been cutting back on the number of new customers as investors have fled the purchase of credit card bonds. The demand for a new credit card has almost completely ceased to exit. Card issuers are now pulling out of many affiliate-marketing programs as well. Credit card affiliates direct new customers to card issuers who in turn pay a commission to the website should the application is approved. However, since November of 2008 many card issuers have been removing certain card offers from the affiliate marketing channel. However, as market conditions worsen, some card issuers have completely pulled out of the affiliate channel. Bank of America, Chase, American Express, Citigroup and new Capital One has either pulled out completely or partially from affiliate marketing channels.In addition to acquiring fewer customers, card issuers have also cut back lines of credit for existing customers. The lack of credit availability has created a domino effect across every sector of the economy. Consumers have been spending less due to the lack of credit. The lack of consumer spending then causes retailers to cut back on employees, thus continuing the loss of jobs.

 

The flow of credit back to consumers will spur costs once again. This new program by the Federal Reserve is supposed to address the lack of consumer liquidity directly. Credit card issuers rely on the purchase of credit card backed bonds in order to continue lending. Credit card companies do not keep loans on their books. They sell the loans on Wall Street as bonds. The idea behind the Federal Reserves new consumer lending program is to get investors purchasing consumer loan type bonds. This includes car loans as well.

Our country needs credit to help sell products. The auto industry has also been devastated by the credit crisis. Every automaker from General Motors to Toyota has experienced losses never seen before. Car dealers do not blame the lack of traffic into their dealerships for the lack of sales. They are unable to obtain financing for a large percentage of new customers. Carmakers have been forced to shut down production in order for dealerships to sell off excessive inventory. The plant shut downs have affected the entire automotive supply chain. Point Logistics, a dedicated trucking company for General Motors has seen a 50% decrease in its business. This has forced the company to cut back on employees and reduce hours as well.

As I have said many times before, the Obama administration has a very difficult job ahead of them. The new government spending initiatives are aimed at creating new jobs. Consumers without employment can not pay debt, nor can they make major purchases, such as automobiles and other higher dollar goods. I am hopeful that the new administration will succeed at restoring our economy back to normal.

Todd Holliday is an an avid business enthusiast who enjoys writing about subjects such as Apply Discover Card [http://www.creditcardsmadesimple.com/View-Cards/Reward_-_Cash/Discover_More_Card_-_Clear/], and Discover More Card [http://www.creditcardsmadesimple.com/View-Cards/Reward_-_Cash/Discover_More_Card_-_Clear/].