Economic choices—good and bad
I wasn’t planning to write about this particular subject tonight. However, two separate articles caught my attention recently. The first was a short article published in the Peoria Journal Star on 10/8/09, page A6. It seems that consumer debt has been decreasing since the recession began. According to the article, consumer debt decreased by $12 billion dollars in August and that decrease was the seventh straight month that a decrease has occurred.
Economically, one of our major problems has been the increasing consumer debt that has been fueling economic growth. This increasing debt, while contributing to short term growth, was and is a negative long term. Eventually such debt always comes back to haunt the nation as demonstrated by the housing implosion that recently occurred resulting—to a great extent—in the current recession.
In fact, this would be an extreme positive if the American consumer permanently learns that consumer debt is a long term negative. The basic economic principle is to save money during good economic times and spend money in recessions when prices become stable or even are lowered. Unfortunately, we have been doing it backwards. Spending like bandits when times are good and cutting back when times get bad. Cutting back is logical when in debt. The irrational action is overspending—going deeply into debt—during good economic times and expecting those good economic times to always continue. It doesn’t and can’t work that way. Eventually, the increasing debt always comes back to haunt the nation—always!
Unfortunately, from past experience, once the recession ends consumer debt will probably begin to increase again which will eventually lead to the same implosion again. The long term solution is to not go into debt. Will we learn this time or return to our same old bad habits?
Of course, our government has not learned a thing from the recession. Instead of cutting spending since it did not save during the good times, the Barack Hussein Obama administration is continuing the nation’s plunge into greater and greater debt at an ever increasing pace. The yearly national debt for the last fiscal year was 1.4 trillion dollars ($1,400,000,000,000) approximately 3 times the previous record high. And with the proposals being presented by the administration, if passed, the national debt will only increase. It may be or seem somewhat beneficial short term. Long term it is almost suicidal.
The second article—actually in the form of a graph—was published in the Peoria Journal Star on 10/11/09, page E3. According to the graph which goes from July through June of the next year, the amount of money collected by banks in the form of service charges has increased from just over 15 billion dollars in 2003 to just over 20 billion dollars in 2009. Further, “an estimated three-quarters (75%—my addition) of this income comes from overdraft and non-sufficient fund penalties.”
A banker friend of mine tells me that most of these overdraft and non-sufficient funds penalties come from the misuse of debit cards—which I can certainly believe. While in Arizona, another friend of mine asked me twice to help her balance her checkbook since she was being charged penalties for withdrawing more money than she had—penalties at $25 a pop. Both times the problem was the same. She was using her debit card to make small purchases and NOT recording those purchases in her check registry.
The result? She was writing checks with no money to cover them because of all her debit card purchases that were not recorded. Once she limited her use of her debit card (I would have preferred her destroying the card) and actually recorded those debit card purchases she did make—at the time of the purchase—her problem was solved.
In fact, I have NEVER owned or used a debit card. When offered, I refuse to accept the offer. It is a convenience but it is often a very costly convenience. And the banks know it.
If it weren’t for these poor consumer choices, consumers would have an extra 20 billion dollars to buy goods and services instead of paying fees to banks for small, but economically costly, conveniences.
You would think they would learn. Is it possible to change from the instant gratification mode to making wise long term economic choices? Is it possible for consumers? Is it possible for governments?
I wasn’t planning to write about this particular subject tonight. However, two separate articles caught my attention recently. The first was a short article published in the Peoria Journal Star on 10/8/09, page A6. It seems that consumer debt has been decreasing since the recession began. According to the article, consumer debt decreased by $12 billion dollars in August and that decrease was the seventh straight month that a decrease has occurred.
Economically, one of our major problems has been the increasing consumer debt that has been fueling economic growth. This increasing debt, while contributing to short term growth, was and is a negative long term. Eventually such debt always comes back to haunt the nation as demonstrated by the housing implosion that recently occurred resulting—to a great extent—in the current recession.
In fact, this would be an extreme positive if the American consumer permanently learns that consumer debt is a long term negative. The basic economic principle is to save money during good economic times and spend money in recessions when prices become stable or even are lowered. Unfortunately, we have been doing it backwards. Spending like bandits when times are good and cutting back when times get bad. Cutting back is logical when in debt. The irrational action is overspending—going deeply into debt—during good economic times and expecting those good economic times to always continue. It doesn’t and can’t work that way. Eventually, the increasing debt always comes back to haunt the nation—always!
Unfortunately, from past experience, once the recession ends consumer debt will probably begin to increase again which will eventually lead to the same implosion again. The long term solution is to not go into debt. Will we learn this time or return to our same old bad habits?
Of course, our government has not learned a thing from the recession. Instead of cutting spending since it did not save during the good times, the Barack Hussein Obama administration is continuing the nation’s plunge into greater and greater debt at an ever increasing pace. The yearly national debt for the last fiscal year was 1.4 trillion dollars ($1,400,000,000,000) approximately 3 times the previous record high. And with the proposals being presented by the administration, if passed, the national debt will only increase. It may be or seem somewhat beneficial short term. Long term it is almost suicidal.
The second article—actually in the form of a graph—was published in the Peoria Journal Star on 10/11/09, page E3. According to the graph which goes from July through June of the next year, the amount of money collected by banks in the form of service charges has increased from just over 15 billion dollars in 2003 to just over 20 billion dollars in 2009. Further, “an estimated three-quarters (75%—my addition) of this income comes from overdraft and non-sufficient fund penalties.”
A banker friend of mine tells me that most of these overdraft and non-sufficient funds penalties come from the misuse of debit cards—which I can certainly believe. While in Arizona, another friend of mine asked me twice to help her balance her checkbook since she was being charged penalties for withdrawing more money than she had—penalties at $25 a pop. Both times the problem was the same. She was using her debit card to make small purchases and NOT recording those purchases in her check registry.
The result? She was writing checks with no money to cover them because of all her debit card purchases that were not recorded. Once she limited her use of her debit card (I would have preferred her destroying the card) and actually recorded those debit card purchases she did make—at the time of the purchase—her problem was solved.
In fact, I have NEVER owned or used a debit card. When offered, I refuse to accept the offer. It is a convenience but it is often a very costly convenience. And the banks know it.
If it weren’t for these poor consumer choices, consumers would have an extra 20 billion dollars to buy goods and services instead of paying fees to banks for small, but economically costly, conveniences.
You would think they would learn. Is it possible to change from the instant gratification mode to making wise long term economic choices? Is it possible for consumers? Is it possible for governments?
posted by Christian Gunslinger at 4:49 AM
1 Comments:
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