“The reason that consumers are not spending more money has nothing to do with attitudes. The reason that most consumers aren’t spending is the same reason that homeless people aren’t spending much money: They don’t have any money.” — Dean Barker, Counterpunch
Credit cards are the bane of Western society’s existence. Perhaps they are a useful tool for the folks who can pay them off each month, however that is not why the were invented. The bankers, also known as bottom feeders, designed them for folks who have no money and keep them maxed out in order for them to collect the interest.
The rest of us never think about the added costs built into your purchase to cover the interest charged to the retailer by the bottom feeders. The true cost of any purchase could be lowered by 12% if there were no credit cards. That’s a lot of money.
Try going into a store sometime and ask for a discount when you pay cash. All corporations look at at you as if you belong in a looney bin, but does it make sense? Of course it does, but our society has been brainwashed into believing we have to put up with this crap and keep paying interest.
The retail sales slump
The Commerce Department reported that retail sales in May were down by 1.2 percent from April. This surprised most economists who had expected a modest increase. The media were filled with accounts of economists trying to explain why consumers were still reluctant to open up their wallets and spend in a big way. It would have been much more interesting to hear accounts of why economists were surprised.
There is always a large random element in month-to-month movements in retail sales or any other economic variable. Therefore no one is ever going to be able to explain these changes with any precision. (The data are also subject to large revisions, so it is entirely possible that revised data will look very different from the report released last week.)
Nonetheless, there is little basis for the surprise shown by so many economic analysts. With few exceptions these analysts failed to see the $8 trillion housing bubble, the collapse of which sank the economy. Remarkably, even now they apparently cannot understand its importance.
To put it as simply as possible (so even an economist can understand it), the housing bubble was driving the economy in the period prior to its collapse, beginning in 2007. It drove the economy in two ways. The run up in house prices led to a building boom. Residential construction, which is typically less than 4.0 percent of GDP, rose to more than 6.0 percent, creating more than $300 billion in additional annual demand. A bubble in non-residential real estate added perhaps another $150 billion to annual demand.
The bubble also drove the economy through the effect of housing wealth on consumption. Economists usually estimate that $1 of additional housing wealth increases annual consumption by between 5 to 7 cents. This implies that the $8 trillion of housing bubble wealth would lead increase consumption by $400 billion to $560 billion a year (Dean Barker, 2010).
If we had any brains we would all en masse default on all credit and let the chips fall where they may. What are the bankers going to do if that happens? Fill the courts with forclosures, bankruptcies, repossessions cases? The point is that banks don’t want stuff; they want interest. When they start getting stuff they will be very agreeable to cutting you a better deal. This is especially prevalent in the collapsed and collapsing real estate market in the USA where more than 7 million mortgage holders have virtually stopped paying their mortgages. What has happened? The banks did not foreclose on them and kick them out. Having empty houses sitting around are just liabilities for the banks, so it makes more sense to have people fill them up with the hope of at least getting some money out of the people occupying them.
Over the past 25 years, we have gone from a society where people live within their means to one of borrowing from future income with easy credit. I’m not sure who is to blame – retailers who make financing and credit very easy to obtain or consumers who are lured into paying for an item later and at a much greater cost to them. The “Own it now, pay for it later” mentality has to change! Years ago, one did not buy something unless they had the cash on hand for it. The discipline in holding off to buy the “latest thing” until one had the means seems to have disappeared.
The bottom line for these times is if you have money in banks, take it out and hide it before you lose it when the banks close the doors; and that isn’t that far away given that your tax money is going to be used to try to bail them and every other greedy mismanaged corporation in the western world out of the mess the bankers have created. Don’t you worry about the Buffets, Rothchilds, and other banking families of the world; they will continue to buy low and sell high at your expense while sucking you into believing you to can be rich if you do as they say.