The Consumer Spending Slowdown Is NOT Because Of Credit
On The NewsHour today Alice Rivlin said that we need to free up the credit markets so people can buy cars. She said there are "credit-worthy" people waiting to buy cars and trucks who can't because they can't get loans.
Then, on the NBC News tonite the reporter said, "Without access to credit, shoppers are tightening their purse-strings."
This is just wrong, and these are people who move in in important policy and reporting circles who should know what is going on! It tells me that rest of the people in these circles also don't get it.
The credit crunch is not the consumer spending slowdown. Big companies are having trouble getting credit. But if you go to a car dealer tomorrow to buy a car, and have an income and good credit, they will bow down and kiss your feet. If you can't find a loan (if you have an income and good credit you CAN find a loan) the manager will loan you the money out of his or her own pocket. It is PREPOSTEROUS to suggest that people with incomes and good credit can't get loans, and that this is why people are not shopping up a storm!
The consumer spending problem is that consumers are "tapped out." Incomes have stagnated for decades, consumers have used up their savings and then resorted to second mortgages and credit cards.
Decades of predatory capitalism have sucked the average working person dry. That is the consumer spending problem. That policymakers and reporters don't know that tells a sad story about how this has come to pass.
Limit executive pay and use the money to hire more people for fewer hours, pay them more, give them health insurance and let people start unions if you want to see consumer spending recover. That's not rocket science.
Follow Dave Johnson on Twitter: www.twitter.com/dcjohnson
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Well said, Mr Johnson...
I find it amazing that Congress is still pushing the BailOut mentality...
What could Pelosi and Reid be thinking!???
Michale....
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Nice commentary.
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It is unclear how the recommendations in the last paragraph can be implemented.
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Taxes! In the 1950's the top tax rate reached 91% and a republican, Eisenhower, was president. We need to set a top limit on executive pay by making our taxes confiscatory at a million dollars or so. Better yet, we could set a maximum multiplier between the lowest paid worker and the top executive and take anything more than that away in taxes. The companies that want to overpay their top executive should also be punished by paying a penalty equal to the wages paid to their top executives.
The high wages paid to top executives only feed their avariciousness and they demanded more. This, in part, led to a predatory form of capitalism that the American people should not have had to tolerate for even a few minutes. It got us into this mess. Now they seem to have it all, but it all seems to be coming apart at the seams.
Actually I agree with the Author here, it's not about Credit, it IS about having any money to spend. I am one of the 10 million American's who lost their home's in the Mortgage Crisis (my apartment complex got sold 3 times in 2 years, our rents doubled, and then many of us were forced out). Few people can afford to have their rent doubled, so it's not about Credit... it's about the money and about GREED.
But let's talk about the Mortgaged Houses that ALREADY have been lost.... homeowners paid in plenty of money which the Banks kept ... which the Banks then invested FOOLISHLY and LOST. So... the Banks fail... jobs fail, companies the banks supported fail... AMERICA is in Hot Water due to the BANK'S FAILURE... it was never about John and Jane Q American failing... not until their jobs were lost, not until they were thrown out of their homes... and now Big Business wants US to spend what precious nickle's (I'm out of dimes, sorry) we have left so they can feed still another round of Corporate Greed? NO THANKS.
Well, I sure don't understand it. But ten days ago, my local paper came out with this article.
"For banks, what credit crunch?"
http://www.startribune.com/business/33676989.html?elr=KArksLckD8EQDUoaEyqyP4O:DW3ckUiD3aPc:_Yyc:aUnciatkEP7DhUsr
"The story goes that they [banks] are holding on to the money or putting it into Treasury bills," said Lawrence Christiano, a Northwestern University economist and consultant to the Federal Reserve Bank of Minneapolis. "That seems to fly directly into the face of the evidence that's out there.".
"Paulson said the funds stopped flowing," Christiano said. "Nobody has explained how the money system has frozen when the data says it has not."
So... Now I am even more confused.
no confusion necessary. Just a shock and awe trick strategy like the WMDs that led us into Iraq but never existed. There was a crisis caused essentially by speculation/corporate gambling and other bad decisions and the illustrious Bush Administration knew that if they shrieked loud enough and generated enough nervousness in the stock markets, they could intimidate Congress into quickly passing a bailout with no oversight and almost dictatorial power in the hands of the Treasury Secretary. Although there was "supposed" to be an oversight committee, it does not, as yet, exist, and the first report/accounting is now overdue. This is a disaster capitalistic ploy to move the money from the poor and middleclass to the wealthy and reckless greedy corporatists in a reverse welfare/socialism for the banks at consumer expense and average American suffering. It will only get worse as they are throwing good money after bad. The new government will have no money on which to operate as it will have been given away to the corporations. Goodby Social Security, Medicare, Universal Healthcare, Educational programs and opportunity, etc.!!
If I gave you $700 billion in today's economic conditions, would you buy mortgages or real estate, commercial paper or corporations? It simply doesn't make sense for banks to buy especially risky debt when they could buy especially cheap assets.
Not only have consumers used up their savings, people also lost some, if not a big chunk of, their savings when they invested it in the stock market.
I have good credit. I can buy most anything I want, whether I can pay for it or not. That is the problem with most people. They have good credit and buy things they cannot pay for. Level One. Now we have people with marginal credit because sometimes they are a little late paying for the things they can't afford. Level two. Then the people with kinda bad credit who used to get denied in a moment, but they represented a market not totally exploited, so give them credit cards so they can buy lots of stuff they never intend to pay for. Level three.
And finally, level four... the senior officers of most corporations in America. In a self respecting nation like Japan, these scum bags could never trade high level corporate positions for high level government positions because honor would have required the sword to be thrust in and up, cutting the heart in half.
And your post is correct. I do not want to spend any more money than I have to on ill fitting clothes, trashy inefficient vehicles, illegal immigrant built houses, and food that tastes like cardboard.
I'm not tapped out... yet. And I don't want to be, so I've stopped being a consumer. And this small sacrifice on my part carried to a larger scale will stop an economy in it's tracks.
I too am spending only what I can afford. I paid off all my credit cards and only use my debit card. Just have $35K left on my house and $10K on a student loan. But that means everything else not actually necessary, with the exception of minimal entertainment and eating out, gets put on hold! Am earning 35% less than in the year 2000, same job.
Right on. Amen.
The myth of "constant growth" in capitalism has been perpetuated and held up through the easy access to credit that American consumers have been getting for the past two decades. Once the plug is pulled, or the interest rates get to high and the average American has $20k in credit card debt, they tighten up the purse strings. Until people are paid more, they can't spend more... and it's true that paying CEO's inflated salaries doesn't lead to 'trickle down' economic success... if trickle down worked, we wouldn't be facing the problems we have now.
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