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December 05, 2008 – Comments (5)

Here is why I hate so much "business journalism."

The recent tightening of consumer credit has shoppers leaving their plastic at home -- and sending retailers into a tailspin.

According to an analysis by Citi Investment Research, the constriction in lending that began earlier this year points to at least a 5 percent decline in consumer spending on goods during the heart of the holiday season. A Consumer Reports survey showed more than half of shoppers intend to rely less on credit this Christmas. One retailer, Circuit City, has already blamed the meltdown in credit for sending it into bankruptcy protection last month.

Let me get this straight. It's a tightening of consumer credit that has stopped people from shopping? You're saying they want to shop, to charge, to take on more debt, but are simply unable to get the credit to do so? But wait, you also said, at the top, that people are "leaving their plastic at home." A crappy metaphor, to be sure, but completely at odds with the second assertion, which is that they can't get credit.

Which is it, WaPo? They're not using their cards, or they can't get credit?

As for the "no one can get credit," story I hear repeated ad nauseum these days, I simply don't buy it. I get at least half a dozen offers of credit card debt at my house each week, and I doubt there's anyone out there who doesn't. In fact, I suspect people with crummy credit histories get more of these, as they are easy marks for the credit card companies. Capital One didn't get into its position as acquirer of Chevy Chase by playing nice with credit cards, unless I recall incorrectly.

(Maybe people can't get as much credit as in the past, especially those who don't deserve it, but this is a good thing. It's called returning to normalcy.)

I have another theory. Crazy, but I'll try it out here: Maybe, just maybe, U.S. consumers aren't completely insane, and in a time of great financial fear, are just deciding to spend less. You know, living within their means? Sure, it's unpatriotic, and it does very little to help the poor, struggling Wall Street bank executives, but sometimes Americans are forced by circumstance to behave in a most un-American fashion.

Naw, that doesn't make a good story when you're heading to DC with your hand out. Gotta be a problem like consumer credit availability, right? Something we can take to Congress or the hapless hacks at treasury, something that looks like a simple thing fix. Give us a TALF, or a TALC, and it'll get straightened right up, eh? Buy up lousy consumer credit portfolios with taxpayer funds, and that will get consumers spending at self-destructive, 2005-ish rates that wishful-thinking executives and politicians confuse with normal? Trickles right down?

I doubt it as well. Sometimes it takes more than a couple practice runs, but even short-sighted, spend-till-you're-bankrupt American consumers can learn to stop touching the stove.

5 Comments – Post Your Own

#1) On December 05, 2008 at 8:28 AM, devoish (86.34) wrote:

Are you trying to tell met that if I have to borrow in order to buy something I cannot afford it? What kind of ridiculous junk is that? Everyone knows that borrowing is just saving in arrears. And frankly I think that your coming out in support of Monkey-do at a time when the Gov't is trying to tax BS is really stepping in it.

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#2) On December 05, 2008 at 9:28 AM, degaston (< 20) wrote:

I think you're right on the money. There are plenty of thrifty, hard-working Americans. These ones aren't going deeper in debt right now. They're circling the wagons on their spending, working harder to earn more money, paying off their debts and hoarding their cash.They will be the reason why the economy rebounds eventually as they'll put the fruits of their labors and their excess cash to work on investments.

However there are plenty who are trying to desperately milk the system by taking on more debt. These borrowers are very risky for defaulting. And that's why the market is charging such a high premium for this risk on the businesses/individuals who are taking on more risk now. Its a myth that the credit markets are frozen. They only appear "frozen" to those who are too risky to be borrowing more money in the first place. 

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#3) On December 05, 2008 at 11:11 AM, Mary953 (83.45) wrote:

High interest apps go to students (as soon as they are 18) whose parents have good credit in the knowledge that the parents will bail out the kids.  They also go to people who pay the minimum on credit cards and charge the max.

You can reach a point of no credit card apps at all.  Just stop charging long enough or go broke badly enough. Once you have nothing left to take, voila, no more credit card apps.

You remember that guy in the commercial with all of the great stuff who is maxed to the limit on all his cards?   (You wrote about him I think) He is speaking through that desperate grin, " I can't even pay the interest.  Please help me."  He is getting tons of high interest credit card applications daily.  He's in everyone's sights.

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#4) On December 05, 2008 at 11:29 AM, saunafool (94.95) wrote:

Two things: U.S. savings rate has recently turned positive. Definitely a good thing, even if the retailers don' t like it. Still, it's only like 2.4% or something. Yet, after years of hovering near zero, it's a start.

Second, I'm wondering how bad things will get over here in mainland Europe. People don't live on credit here. Home equity loans do not exist per se--you can get a second loan in order to construct an addition or upgrade to your house, but you can't just lump your car onto the loan or cash out $40,000 for no reason.

In Luxembourg (and I believe this is the same in Belgium, France, Germany, and the Netherlands) you cannot get an American-style credit card. My card that says "Mastercard" needs to be paid off every month. Plus, the bank has a locked account for the full value of my credit limit (I think this is a temporary measure because I have no credit history in Europe).

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#5) On December 09, 2008 at 3:25 AM, minimidgy (80.45) wrote:

Err, TMFBent, how did your score go down so low?

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