Punchinello’s Chronicles

November 28, 2008

Misleading Reports on Declining Consumer Spending

Filed under: View from the Bottom — Punchinello @ 4:00 pm
Tags: , ,

It’s “Black Friday,” the day after Thanksgiving, 2008. This is supposedly the heaviest shopping day of the year, and kicks off the traditional holiday season for retailers. It’s the period when most stores earn enough money to put their accounting balance “in the black.”

What’s weird, though, having heard the expression for years and years, is that I wonder how come they’re running in the red most of the rest of the year? Is retail so horrible that most stores don’t make a profit excepting for a couple of weeks around Christmas? If so, then you’d think nobody would ever open a store!

But that’s not the important thing this year. Over and over, we hear about how consumers “prefer” not to shop as much as in the past. We’re “choosing” to spend less. We’re worried about the stock market, job layoffs, home values, and so forth. And we’re all of us thinking deeply about liquidity, world markets, foreign exchange rates, credit availability, and so on.

Yah…right!

Nobody much cares about all those complicated economic words. Nobody understands them for the most part, excepting people who like to learn things and study economics. Okay, it’s not really “nobody,” it’s only most people. Sure, worries about getting laid off matter, but worries about the stock market? Really?

Average consumers aren’t in the stock market in any understandable way. They’re maybe invested through company pension funds or other systems where they really don’t know how much is invested. They typically don’t track the market every day, wondering if they’ll have enough to retire. At least that’s the way it is in the real world of lower-income folks.

A lot of people DO have portfolios, but they’re not the ones that “prefer” not to spend money this holiday season!

Nope, most people are using credit cards to pay for everything. They don’t carry cash. They stopped using cash years ago, with the advent of easy credit cards. They get 1 card with a $2,000 limit and suddenly, they have Money!! They don’t get the concept that they have debt…not money.

Then they go buy whatever they want. After all, the minimum monthly payment is only a few bucks, right? Who cares about interest? It’s not all that much, right?

One day they go to buy something and the card’s rejected. “Sorry, you don’t have enough on this card.” Hah! So they apply for another card. Then another one. Meanwhile, the first card company sends them a nice letter: “Because you’re a valued customer, we’ve increased your credit limit to $1-gazillion.”

Then the other cards all increase the limits. After all, it’s only minimum monthly payments, right?

Nope, it isn’t that consumers “prefer” to shop less this holiday season. It’s that they’ve maxed out all their credit cards! The first trick-bag was when the credit card companies doubled the minimum monthly payments. The next problem was when people lost their jobs. Then came the housing crunch. People started paying their mortgages with credit cards.

Another fiasco was the one about how you can “transfer your balance and we’ll give you a card.” If one card had a high balance and high interest rates, you could get a different card, lower interest rate, and transfer the balance. Plus, get additional credit. So taking from Peter to pay Paul went around and around.

Reports and statistics claim that only a small number of people have maxed cards, no money, and are using credit cards to pay for consumables. I think that, like unemployment statistics, those reports are hogwash. I think a tremendous number of people have been living on credit cards for decades.

And now it’s all stopped! When we hear that banks aren’t as quick to loan money, the media tries to say that it only matters for businesses. Payrolls, inventory purchases, and so on are based on small, short-term loans. But in reality, whenever a credit card company raises the limit on a card, that too is a loan!

Banks aren’t raising those limits! And people have no more credit. So how are they going to buy little Johnny and Susie the PlayStation, or new bike, or running shoes? They can’t.

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