Posted on 07/05/2010 5:12:25 AM PDT by blam
Cecchini: U.S. Consumers in 'Dire' Credit Situation
by: Edward Harrison
July 05, 2010
Peter Cecchini, chief strategist at BGC Financial, talks to Pimm Fox about the U.S. economy and consumer credit on Bloomberg Television’s "Taking Stock." He says that the 122% percent household debt to GDP ratio is well above the pre-1980 average of 60-80%. Just to get back to a 100% to GDP ratio, we need an additional $2 trillion of deleveraging. In the absence of income growth, you just aren’t going to get these numbers down without deleveraging.
This is the major reason I have said that household deleveraging has just begun and that we will be in a balance sheet recession for the foreseeable future. Cecchini says the fake recovery has really been just a liquidity trade, one that has run out of steam. Could we be on the cusp of another more powerful liquidity trade? I think so. But more on that later in the week.
[snip]
Click to the site of the article to see the video with Peter Cecchini
Given that those rates are at historic highs there's a strong suggestion that the credit card operators have a very bad business model.
Congress could help by placing a cap on fees and "interest". This would drive out the inefficient operators ~ BTW, that still leaves the "brand names" in operation, but the folks behind the scenes will certainly change. Now is the time to do it while so terribly many financial specialists are UNEMPLOYED. This way we can do it on the cheap.
Solution: don’t get a credit card.
I’ve been plastic-free for 5 years now, and there’s nothing more gratifying than saving up for a big purchase, walking into the store, offering cash, and getting a little bit taken off of the price for doing so. Mom and Pop shops gladly take off of a marked price if you offer cash since credit cards rape them on transaction fees.
Debt is dumb. I wish our government would figure that out.
that is like saying, “go live in a cave in the mountains”
I agree. I wish I’d never gotten any, because I’m going to be digging for a while to get out. My goal is never to have one again.
I’ve been on a cash-only budget for 5 years, FRiend. The only reason people think that way is that they’ve never tried it the other way.
Cash is very easy to live on. Create a budget and live to it. Want the newest iPhone but don’t have the money? You either don’t pay the electric bill, give up on three or four nights of take out, or you save for a few months to afford it.
Going back to the mentality of our predecessors when it comes to money will enable us to become more powerful consumers since we have to be cognizant of the value of things.
It can be done! Keep hacking away at it, and you’ll have it paid off soon enough. Remember to start with the smallest debt and enjoy the fruits of the small victories.
Please don't cite liberal crap like that.
Mom & Pop stores use Merchant Account providers. If you shop properly, you can usually pay as little as 1-2% on credit sales....not "rape" when you get the cash directly deposited into your account that week.
Some Merchant Account providers charge more, but it is based on risk, something a capitalist can appreciate, but something a socialist asks government to control.
Actually, my family runs several shops that use exactly what you’re talking about. They have to pay 1-2%, like you say, but for what? So they can take someone’s money? My grandfather went over to cash-only, lost a lot of customers, but those who come back and pay cash understand why he did it. He’s not gone out of business, but he made the choice not to pay to take other people’s money. He runs an ice cream shop, and people know to go to him for the best homemade ice cream. They gladly pay cash.
It’s not liberal crap to say that they’ll take money off of a purchase if you pay in cash, it’s the truth. I’ve been doing it for several years, and independent shop owners will usually come down on their prices if you offer cash. They build the 1-2% transaction fee into their pricing, so if you’re willing to spend those extra few bucks on something you intend to purchase with cash, then just don’t ask. I’ll take my extra $1 and go buy a cone from my grandfather.
Sorry, pal, you used the term "rape" and THAT makes you sound like a liberal.
Some folks on FR take rhetorical speech a little too seriously. If you want to run a business and take credit cards, then you should expect to pay the fees required by the merchant transactor. That’s fine. I understand that, and I agree that’s capitalism at work.
I used the term rape in reference to the relationship between the merchant and the card swipe provider. Would you have preferred another word? Which word would better suit the situation? My family uses and pays the fees to these companies. They don’t complain. It’s also considered capitalistic to have the choice NOT to use these companies, which is exactly what my grandfather has done.
You’re referencing a single word in a single thought and you immediately jump to calling me a liberal? I never asked for any entity to regulate the industry. Quite the opposite, actually. I’m telling folks to pay in cash and talk to the merchant. Some will come down in price, some won’t. The merchant can take the cash off the books and put it in their pocket. Not exactly “honest” with the IRS, but it happens everywhere. Is it Liberal to dodge the taxman too?
Solution: don’t get a credit card.
That being said, the credit card companies have definitely pulled back on the rewards being offered lately. You also want to use rewards that can be quickly redeemed. Travel (airline) rewards are the worst-—gas credit cards are the best.
It seems to me you can do this too if you are capable of living without plastic.
Debt is dumb. I wish our government would figure that out.
I wouldn’t go about saying someone’s wrong and then turn around and offer an unwarranted argument. I know plenty of people who do exactly what you are doing, but in reality, you’re simply playing with fire. At some point, you’re apt to get burned. As you juggle with those cards, use them to make purchases, reap rewards in the form of air travel, hotel stays, or other real or virtual goods, and the very first time you miss a payment for whatever reason, and you’re up the creek.
Here’s the best way I can explain this, rbg. First, you’ve got this card, you’re spending every month, buying groceries, paying bills, raking in rewards on these cards. When the bill comes in at the end of the month, you make one payment, et voila! You’re free and clear for another month. Now, let’s say you’ve been doing the same thing and in the middle of the month your employer cans you for no reason. You now have a credit card bill with whatever amount on it and the possibility of carrying over a balance or even missing a payment, and you’re up the creek.
On the other side of the coin, if you live off of cash, you can make your payments, monitor your cash reserves, and if put in the same position, you don’t have to worry about overages, missed payments, or balance carryover and thus, interest rates.
I used to play the game too. I would get 0% rate cards, charge up $2500 for a sofa set or a bunch of tools, pay it off before the intro period expiry, and I was happy, thinking “I showed them.” However, for all of my diligence, I still worried about unforeseen circumstances. Under a cash system, I know how much I have, I have a stockpile of cash for emergencies, and I can watch real money (not a line of credit) accumulate.
Ask most millionaires if they have credit cards, and you’ll likely find most don’t. They’re not your friend. I’m not wrong, I just thinking differently. If thinking differently from 80% of the consumer market means I’m wrong, I don’t want to be right.
I talked to an out of work journeyman electrician last week. He hasn’t been able to find work for over a year now, his house loan is under water, and he is living off some side work he has been doing and a $25,000 line of credit from Wells Fargo. He doesn’t know what he is going to do if things don’t turn around soon.
He does very expensive work mainly for the the rich (I told him no-one else can afford him, lol) and last year I asked him what were they (his rich customers) saying about the economy, etc. He said, that they told him they were spending their money while it was still worth something.
Peter Cecchini, chief strategist at BGC Financial... says that the 122% percent household debt to GDP ratio is well above the pre-1980 average of 60-80%.Thanks blam. Pre-1980 was the years of the OPEC- and Carter-engineered recession, which played a role in lower debt percentage -- and yet, the Carter administration gave us 20 percent interest rates, which helped soak up Petrodollars and further enrich a bunch of sheiks and terrorists, another part of the Carter legacy.
Well, I’ve been doing this for going on 10 years now and haven’t been burned yet. Before the advent of online banking, I did indeed miss a couple payment. In each case, I called Customer Service and got the charges reversed—they simply didn’t want to lose me as a customer. Now, I have my accounts set to automatically pay a $100 each month. Not a real problem since this is way above my min and less than I typically spend anyway. And I never charge so much that I can’t pay it off every month.
So....I really DO live off cash, but use the credit cards to get rewards, so I am really buying at a discount.
And regarding your suggestion that I “negotiate” for discounts for paying cash, my comment is: No thanks. First of all, I don’t typically shop at “Mom and Pop” stores—most of my purchases are online these days. Second, I would find it unseemly to dicker with retailers over a few cents or dollars per purchase. Third, its a waste of my time. If you want to live that way, have at it. I’d much rather get the words automatically and without hassle or fuss.
To each their own, RBG. I know plenty of folks who do what you do, but I prefer to not deal with the CC vultures. I had too many problems with them in college (they’re really bad with college kids, but that’s another story), and I choose not to deal with them anymore.
As for the negotiation side, I prefer to patronize local businesses. That’s not to say that I don’t do my fair share of online shopping, usually around the holidays, but if I can buy something locally that I saw online, I can usually find better deals by haggling. It’s something that I’ve had to learn how to do, but most locals will throw me a bone. Cigars, local wares, and even meals are usually negotiable. I’ve had some luck at big box stores, but most places can’t work down due to fixed pricing by corporate.
Not knocking your way of doing things; I just prefer simplicity over haggling with some call center grunt.
Getting 1-2% off is not really a discount.
Solution: Pay off your Credit Cards in full every month. Then you are using the credit card companies, instead of the other way around.
True, but you do realize the entire basis of our economy is based on creating impulsive demand. If everybody acted as prudent as you suggest, the whole economy would collapse.
Are you a Dave Ramsey fan? If not, you sure sound like one :) No credit cards here either. Debt-free except for the house. Dh bought a pickup with cash earlier this year. It’s a ‘97, mind you, but it’s newer than the ‘88 Honda he used to drive, LOL.
Dh walked in with cash to buy the Wii for the kids for Christmas last year. He got some extra gear thrown in and 10% taken off, which paid the sales tax and then some.
The kids are learning proper money management already, and they are 12, almost 8, and 6 (plus an almost 3 y.o. who cares nothing about money yet). They know when they are out of money, they are out of luck :)
It’s usually more than 1-2%. Pack of cigars marked $69.99; for me, out the door, $50 cash. The other folks who come in with plastic pay sticker. Plus, I’ve made friends with the shopkeep. That’s the key, IMHO: if you haggle, you get to know someone. They’re not going to let you take advantage of them, it’s their business afterall, but by striking a rapport and becoming a regular customer, they know my name, and giving me a cash discount becomes the norm.
Your solution requires the problem to exist. In my case, I don’t have the “problem” of plastic, so I don’t have to worry about paying anything in full.
I understand that concept completely, dfw. I choose not to be impulsive. As an alcoholic, I’ve lived my entire life being impulsive, including with booze. Having been in recovery, I understand that impulse control starts with removing the impetus for the impulse. No credit card, no temptation to spend on something that I’ll have to pay off with interest. Instead, I save the money, and when I have enough, I buy what I want. Not to mention, there have been items I’ve saved for, gotten ready to buy, and decided on something else or that I didn’t want the item in the first place.
By giving into those impulses, we’re not teaching ourselves to save anything. I’m 30 years old and would prefer to live like my grand- and great-grandparents. They didn’t have plastic, they socked the money away in a shoebox and spent when they could afford to. It gives the concept of money a completely different perspective, and I think that’s important for today’s society.
Dave Ramsey is my personal financial savior! I’ve called into him numerous times, and when I became debt free, I called his show and screamed the mantra. I truly believe it when he says, “To live like no one else, you have to live like no one else.”
I’ve got the little lady on the plan, she just paid off her car last week. We both have 2005 vehicles free and clear. Watching the bank account grow is a pastime of ours. We’re going on vacation this week and are already planning out next one: completely paid for in cash.
He helped save us from the brink of disaster! We started in April of 2008 and finished paying off $17K in 22 months. It would have been sooner, but Murphy came to visit a couple of times, and we have 4 kids (3 in Catholic school). Never called in, though :( Emergencies don’t feel like such catastrophies anymore.
We’re going back to Indiana next week to visit family and pick up the two kiddos who are visiting my in-laws. We usually end up with cash left over when we travel because we always overestimate on gas :)
Yeah, fixing up this old house might take a little longer when we have to pay cash, but at least it’s paid for!
We’re also facing the prospect of not one but two job offers for dh (one came out of the blue). Moving doesn’t make me so nervous when I know we have the cash to help us along.
Momma, I totally understand and relate. My fiancee and I are completely content together knowing that money will never be an issue between us. She’s a widow from a relationship that was destructive and untrustworthy. She’s seen the glory of God and His influence in my life and through Dave, and we’re on the path to prosperity and everlasting happiness through God and through the sacrament of marriage. We’re so excited for our future knowing full well that money will never be a sticking point and will never come between us since we’re completely open and honest with each other and live solely on the money that we both make through our hard work and perseverance.
Dave’s ministry has truly been a gift in my life.
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