While there are very few areas of finance which will not be directly effected by the ongoing credit crunch, which originated in the US but has since spread to all of the major economies of the world.  The fact that the lack of liquidity is having an immediate impact upon the supply of credit, and may well see short term money market rates pushed higher, will have a major impact upon credit cards.  But why?

Credit cards themselves are the most basic of debt instrument, and for each customers debt there needs to be a funding arrangement in place to cover that liability, if the person were not able to play.  The fact that short term credit rates have increased in the money markets, will soon impact upon everyday life - unless the situation can resolved as soon as possible.

While the financial institutions will try to resist any major changes for as long as possible, they cannot carry this short term increase in cost forever. There are many optimists in the market who feel the effects will be short lived, but we have only just seen the start.  Those companies already effected deeply by the situation, such as the original sub-prime lenders, will be trying desperately to reorganise their finances.  Those that fail will soon make their bad news public, which will see a sharp drop in confidence in the sector, putting yet more pressure on other companies.

The news that China and other areas of the Far East have become embroiled in these complicated financial instruments does not bode well, with a number of prominent American institutions originally looking at Far Eastern finance to bail them out of their current predicament.  It may take some time to unravel, but slowly but surely we will soon see more bad news filtering through.