The mortgage crisis was just the beginning. Looks like the end of the entire credit card economy and the dawn of a new era where people actually have to “pay” for what they buy. Dan Gross writes:
The most revolutionary notion in commerce today is one of the oldest. If you want to buy something, you may actually have to pay for it. We are reverting from a “borrow and buy” economy to the “cash and carry” model of our grandparents …
It wasn’t until Bank of America began carpet-bombing California with credit-card applications in the 1960s that the debt wave started in earnest. In the decades since, consumer credit became so pervasive that paying cash became passé. Want a new $32,530 Dodge Ram Crew pickup? Take a lease. Sick of your old house? Get a 100 percent mortgage and trade up. Face lift? Round-the-world cruise? New PC? Three-hundred dollar sushi dinner at Nobu? Whip out that plastic. …
Students returning to college are finding that student loans have vanished. Retailers who freely extended credit to any customer with a pulse are deploying bean counters armed with sophisticated software to sniff out potential deadbeats.Students returning to college are finding that student loans have vanished. Retailers who freely extended credit to any customer with a pulse are deploying bean counters armed with sophisticated software to sniff out potential deadbeats.
The credit card economy created a mass illusion of ongoing “prosperity.” I’m not sure the new reality has even begun to sink in – I still sense mass denial out there. What say you?
UPDATE: Felix Salmon says not so fast – credit and credit cards may be downsized, but they’re here to stay.
September 2nd, 2008 at 8:22 am
The only credit card I use is my debit card – if I can’t pay for it right then and there, I can’t have what I want. But with all the big cars and fancy equipment “youngsters” have these days, either everyone is hitting the lottery and keeping mum or their credit cards are getting plenty of use.
September 2nd, 2008 at 9:19 am
I was surprised to discover that undergrad students are willing to pay more for an apartment than are grad students, even though the latter are more likely to get a stipend and more likely to be married. Today’s undergraduates also have shown a clear preference for not having to share a bedroom. Both the privately owned student apartments and the on-campus dorms are being modified to provide more private rooms. When I was in college, the private room was a luxury for the wealthy or for seniors who had hung around long enough to reach the top of the queue. I would be interested to learn if the credit crunch affects the numbers or the lifestyles of students at my local school.
September 2nd, 2008 at 9:43 am
I think SNL summed up the issue nicely in a sketch with Steve Martin a few years ago:
http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-stuff
September 2nd, 2008 at 10:03 am
Another way to end this overspending is to stop taxing income (used to be unconstitutional) and property (immoral), and start taxing consumption.
Not only is that the best way to stop people from buying things they don’t need, but it is also the fairest way to raise taxes.
Check out:
http:www.fairtax.org
September 2nd, 2008 at 10:42 am
If student loan availability shrinks, many universities may have to tighten their belts as well. When students could amortize their education and student lifestyle over their entire working life, universities didn’t lose “customers” when prices went up modestly.
Now, a slight increase in tuition could price education out of reach for some.
September 2nd, 2008 at 11:13 am
It’s over, folks, the economy is in the toilet. Flush your credit cards, deal with your debt and live within your means. It’s liberating! You don’t need 90% of the crap you buy anyway – get over it!
Hey Richard, remember me? I’m the girl that created weirdcharlotte.com. You left me a comment there once. I have something to show you but it’s too long for a comment, so if you want you can e-mail me at shivita@mac.com.
September 3rd, 2008 at 2:01 am
It depends on who you read, but I think we have some chance of returning to something like the 1930’s.
There is so much debt around the world, and we will soon face the double whammy of baby boomers trying to sell assets to find retirement, as well as rapidly increasing health care costs.
If the demographic tidal change hits while the credit crunch is occuring, many asset prices may halve or worse.
One reason for this is that the younger generation in many countries is generally not the group who have benefitted from rising house prices, etc – and as a result, will not have the cash to buy houses and businesses from the Boomers.
September 5th, 2008 at 7:25 am
It’s interesting. Credit was a way to extend the illusion of the so-called “American Dream” and middle-class life. Folks used their homes as piggy-banks to finance current consumption – a new kitchen, outside deck, new SUV, trips to the mall, even vacations and fancy dinners. It amazes me how many people continue to behave this way. It’s not just LA and other lifestyle centers. You see it all over the Midwest heartland. There is this kind of broad denial that the “party” is over, an almost delusional world-view that this will go away and everything will go back to normal.
September 7th, 2008 at 7:56 pm
“The credit card economy created a mass illusion of ongoing “prosperity.” I’m not sure the new reality has even begun to sink in – I still sense mass denial out there.”
Actually I posted something similar to the above in a previous post on a different topic on this website and I cited Warren Brussee’s book “The Second Great Depression: Starting in 2007 Ending in 2020″. The topic I think was related to an article supporting the idea that there were two separate economies one the ipod, blackberry, electronic gadget economy and the other the depressed down and out economy. I stated then there was just one economy that was driven largely by debt and interconnected by the value of the American dollar. I am wondering if Dr. Florida has read this book???
Anyway based on Brussee’s post on Amazon.com he is moving his book to a larger publisher and the new version will be available in December.
October 12th, 2008 at 9:00 am
Gadget…
Great article, Go Gadget go…