There is still a good possibility that credit card companies may be forced to cancel cards for a broad range of holders. If things get very bad, then they may have to suspend all credit cards.
In either case, since very large numbers of people are dependent on their month-to-month credit balance, living “behind” by a month, this might cause another phenomenon—the death of the bank check.
Though it is not a credit instrument, a massive surge in check overdrafts to pay monthly expenses, because of credit card cancellations, could force banks to discontinue checking nationwide. Conversely, retailers could cause the same result by just refusing to honor bank checks.
Nationwide, this would force most retail business to be done with debit cards or, to a much lesser extent, cash. And there is no choice in this, because only about 5% of our retail economy is backed by paper currency. Most banks only have perhaps $30-50,000 cash at any given time.
Ironically, because many transactions cannot be done with debit cards, this could cause massive deflation of paper currency alone. That is, debit transactions for $1 would cost $1, but perhaps only 10 cents, if paid for in cash.
And how many people do you think have more than $200 in cash at home?
For this reason, purely on painless speculation, it would probably be a very good idea to keep a few thousand dollars cash in a safe place in your home.
Your advice to keep an emergency stash of cash on hand makes a lot of sense right now, esp with money market interest rates at less than 2%. There are a number of reasons, besides the ones you quote, that may require such a stash, regardless of how improbable they are of ocurring.
If things get so bad that credit cards are ubiquitously being canceled, that will hurt the retail business. Retailers will come up with creative ways to peddle products, although the industry as a whole will take a hit. Some stores will offer credit, lay-a-aways (remember those) may make a comeback and preferred customers will be able to write checks or keep some type of tab. I am sure other ideas will emerge.
How would that happen? Credit cards are profitable for the many banks that still have money to lend. They are even more profitable now since many of the competitors have been hurt.
Sure, bad credits will have a hard time getting a line, but everyone else will do fine.