Consumers Squeezed from Both Sides

This post first appeared on Minyanville.

One thing’s for sure. We’re all gonna be a lot thinner!
- Han Solo, Star Wars

American consumers are getting squeezed like aspiring Jedis in a Death Star garbage masher.

Hundreds of billions of dollars in losses have forced financial institutions around the world to rein in credit just when their clients need it most. Amid mounting job losses, falling home prices and high energy costs, consumers are finding it harder and harder to make ends meet.

For years, keeping the lights on was a cinch. If times got tough, getting more credit was as easy as sifting through stacks of junk mail and picking the best offer. Now, issuers are reducing limits, jacking up interest rates and discontinuing promotional offers.

The New York Times reports things could get worse. In the first 6 months of 2008, lenders wrote off around $21 billion in loan losses. Analysts say layoffs and a dim economic outlook could result in another $55 billion by the end of next year.

In an attempt to stem the bleeding, issuers like American Express (AXP) and Bank of America (BAC) are reluctant to give new cards out to anyone, let alone borrowers that seem even the least bit risky. Capital One (COF) is closing inactive accounts; it cut credit lines by almost 5% last quarter alone.

Spending money certainly isn’t getting any easier. And to make matters worse, saving it is getting tougher too.

Hitherto generous 401k matching programs are going by the wayside as companies hoard cash in preparation for lean economic times.

According to USA Today, General Motors (GM), which is hoping for a government bailout, announced last week it won’t match employee contributions to their 401k retirement accounts.

GM isn’t the first, and likely won’t be the last, company to cut costs in this way. Goodyear (GT), Dollar Thrifty (DTG) and real estate broker Cushman & Wakefield have all shut down their matching plans. Goodyear, for its part, actually shut the program down in 2003 and plans to start it back up again next year.

For consumers, this all adds up to one easy decision: Buy less stuff. This doesn't bode well for retailers, or any other company dependent on free-and-easy American wallets.

With credit nearly impossible to get, interest rates on savings accounts plummeting and wobbly banks suckling at the government teat just to stay afloat, Americans may soon resort to the age-old practice of stuffing cash under the mattress.

Who knows, as deflation takes hold and the dollar rallies, it may not be such a bad idea.