Tuesday, September 4, 2012

My fellow Americans, Lend me your . . .

C. Neuroticus Absolutus

Americans are hedonistic. Like the grasshopper of legend, we don’t save, which forces the U.S. to borrow from abroad, from China and others. A great amount of the interest we pay on the loans goes out of the U.S. instead of bolstering the U. S. economy. Americans have a feel-good gene that demands that we feel good all the time. It expresses itself in the form of greed and impatience. We desire instant gratification, instant return on our investments, and demand short-term returns on everything. We have a “what’s in it for me?” attitude and haven’t the patience nor the temperament for long-term investments. Even our government runs on borrowed money. Consider what our nation could do with the interest we now pay to foreign investors just to service the loans on the money we borrow from them. This should be our incentive for paying off our national debt as quickly as possible.

For those who pay off their credit cards each month, their debt is short-term and the cards are merely a convenient way to avoid carrying so much cash on their person, a matter of security. But for others, credit cards are demons of debt. Blame credit cards? Plastic money? I think not. Credit cards make it possible for us to temporarily slake our hedonistic appetites and attain insistent gratification which, at best, may last until the next shiny bauble catches our eye. William Shakespeare advised against debt and even more in Hamlet, Act I, Scene 3 (1623) when Polonius warned his son:

Neither a borrower nor a lender be;
For loan oft loses both itself and friend;
And borrowing dulls the edge of husbandry.
This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.

Smart man, ol' Willie Shakespeare.

Cash and Carry was once a popular term as the pioneers moved west. It meant you could carry the goods out of the store only if you paid cash. No loans, no credit, no way. The purpose, of course, was to prevent westward-bound travelers from taking advantage of kindhearted shop owners and skip town without paying. Nowadays, without so much as a signature in some cases, a customer can carry out of the store just about anything his heart desires. The reason, of course, is credit. Before computerization of purchase records and debt accumulation, it took several days for an auto dealer to get credit approval on the car you wanted so badly—unless you were already known by the dealer as well as the bank. In this computer age, transactions for autos are arranged within minutes and the customer once again (temporarily) slakes his unquenchable thirst for instant gratification.

Window shopping and impulse buying are such successful factors in marketing to today's generation of shoppers that merchantmen carry larger inventories to insure that no one leaves the store without purchasing something that tickles their fancy. The successful merchant trades on the hedonistic traits of his customer base. Lure the customer into the store with loss leaders or deeply discounted coupons and they'll buy more than enough to cover the cost of the loss-leader and discounted items many time over.

The merchant is happy and the customer is happy. Win-win, right?

Well, maybe.
Credit cards mean personal debt and debt affects our lives daily in many ways. Credit card purchases are short-term loans, the most expensive type of loans to enter into. In practically no time, compound interest on these loans wipes out any benefit the deeply-discounted prices and coupons may have initially provided. And as long as the loan is in force (unpaid), the credit card user is paying interest on interest. The system is not meant to benefit anyone who will not or can not pay off his/her card monthly as the debt is accrued. This is exactly the kind of customer the credit card companies do not want.

Meanwhile, the credit card company is double-dipping, maximizing profits charging the merchant up to 2% just to handle the credit transaction at the same time they are charging the consumer up to 21% (and possibly more) on the loan. Credit cards are extra work for merchants and they pay for the privilege of accepting credit cards for payment. Nevertheless, merchants are well aware of the contribution of impulse purchases and the contribution this makes to their bottom line. Consider how Christmas sales would suffer if instant credit were not available. The incredulous charges for missing a payment won't be discussed here except to say they represent the clearest form of corporate greed in America—with the possible exception of rubber-stamped home foreclosures.

For the merchantmen, credit cards are a win, too. Without the buy now—pay later knee jerk purchases of consumers, the entire business cycle, from raw goods suppliers to manufacturers, manufacturers to distributors, distributors to merchants and merchants to consumers would barely creep along compared to the present turnover rate of products in the cycle. With the faster business cycle comes greater employment, a wider variety of products, richer middlemen and merchants and ultimately happier consumers. Maybe that's what trickle-down economics is really supposed to mean—a description of the benefits of the business cycle, not a plan to give money to the rich and let it trickle down to the poor (popularly called Reaganomics). It begins with consumer needs or wants which generate the demand for product(s) which the merchant then orders from the distributor, and so forth. The lack of consumer credit slows the cycle, decreases inventories, increases layoffs, and increases unemployment throughout the product pipeline.

The economic engine of our country slows when consumer purchasing decreases. Decreasing purchases mean less tax money to run our country, repair and maintain our current infrastructure, build new highways and bridges and waterways, provide for the health, welfare and education of our citizens, and provide for our national defense. And borrowing at the local, state and federal levels increases to provide the services required by their citizens.

Thus, the availability of credit for the consumers is directly responsible for keeping our economy, our economic engine, running.

So there you are. Credit cards: An immeasurably great business based entirely on the hedonistic traits of American consumers. “I want it now! I deserve it now!” Maybe, even with the downside of overextending credit to irresponsible consumers, credit cards are a necessary evil in our lives. They're ubiquitous, everywhere you go, and have allowed the hedonistic Americans to satisfy their cravings for the ever-changing trappings of affluence and success—and in the end, perhaps unwittingly, underwrite the success of our country as well.

But as always: Caveat emptor, which is Latin for “Let the buyer beware.”

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