Back in the mid-2000s, when the Irish economy was reaching the peak of the Celtic Tiger era, banks were basically standing in the middle of towns and villages across the country throwing credit cards at people. Anyone could have had one, and anyone should have had one, since rampant consumerism was what was needed to protect Ireland from the speculative property bubble and rising house prices. The only way to diversify from real estate was to get people spending as much money as possible, therefore making the economy less reliant on one fragile sector. And of course, why not have a credit card? Sure there was plenty of money to be made and loads of jobs going around: these were the days of our lives. Things have changed considerably since then, but that’s another story.
In 2006 I was going on a trip around Asia, and my parents convinced me to get a credit card, just in case anything happened to my other (!?!) money while I was out there. As a broke college student and they just handed me a credit card with a €2000, no questions asked, which was customary at the time. I had it just for emergencies, and then gradually started using it more and more for flights and internet purchases, and was always careful to make sure there was no money owed on it for any lengthy period of time. Then one day, in the midst of the financial crisis, I decided to take a break from being unemployed and blew my entire €2000 credit limit on a trip around South America and Australia, which seemed like a good idea at the time. Needless to say, when I got back from my trip I began the tortuous and penniless existence of PhD life, and have not been able to make a dent in that debt in the past five years. If I need to use my credit card, I simply pay off the exact amount I need, and then use it immediately, bringing the card up to the limit again. It isn’t the best strategy in the world, and my first priority when I get a real job is to tackle that debt. In the meantime however, it really isn’t that big of a deal: the monthly interest is low, and there is no annual fee from the credit card company. In truth, credit card companies love idiots like me who they can string along for years, as long as I pay them the interest every month.
So, as I said, my credit card is always at the limit. If I want to buy anything with it, I constantly have to pay off enough on the card to afford the item, or else the card will be rejected. If I charge €1 more than my credit limit on that card, the transaction fails and I feel like the idiot I am. Yet sometimes, I look at my online credit card balance and see, curiously, that it is €30 or €40 over the limit. This is impossible for me to achieve, so I am always very interested in what happened. Invariably, this charge comes from one of two organisations: my bank (Bank of Ireland), and the Irish Government. The government charges an annual fee of €50 on all credit cards in Ireland, which is fair enough, and the Bank of Ireland sometimes has silly charges related to its shareholders needs. And both of these entities have the power to override my credit card limit.
This seems pretty innocuous at first, but it really is quite worrying. Firstly, from the perspective of the bank: they are charging me more money than THEY THEMSELVES have judged me able to repay. “He can have this much, but maybe a little more if we need some of it.” The same point is true from the perspective of the government, which is in effect incurring excess debt to its own citizens. Added to this is the fact that this money doesn’t actually exist in any place but on the balance sheets of the bank and the government. You might argue that since it is “credit card money”, it doesn’t exist anyway, but this “money” is additional to the legally agreed credit limit. Granted, the government (hopefully not the bank too) may have some special legal powers to override this credit limit, but this is still creating money. Creating money to pay themselves. Of course they would argue that the cost of this creation will be borne (and therefore nullified) by the credit card holder, but given the amount of credit cards and bad debt in Ireland, I doubt that this is true in every case: I can’t see it adding up on either the governments or the bank’s balance sheet. In any case, it doesn’t spark confidence in either of these institutions, or that any lessons at all have been learned since the recession.