Americans seem to be getting angry that banks are now reducing credit card lines, HELOCs, and other credit instruments just months after they were complaining about banks being too generous and loose with lending. What gives?

It seems banks are in a double bind; damn if they do, damn if they don’t and this helps explain why the credit crisis is deepening and no one knows what to do at this point. Is the solution to reopen the credit generosity or continue tightening it?

Should people live within their means or borrow to meet their means? McCain now wants to buy all mortgages at full value and give those homes to people at a reduced mortgage principle -what generosity! I get to buy homes for everyone out there!

We’re in a death spiral here, as banks continue to cut credit lines, FICO scores will continue to deteriorate across the country which will make banks even LESS willing to lend. We are in a deflationary spiral and that is EXACTLY what will lead to a deep recession or even depression. Homes and autos are the first casualties as they are the more expensive ticket items but college education, small business lending and ultimately large corporate lending will all deflate exponentially as time progresses if things don’t change soon.

Holding debt during inflationary periods is great, holding debt during deflationary periods is deadly. I’ll be unwinding most of my debt in the coming weeks, including all arbitrage debt. Good luck.