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The Inexplicable American Consumer Hits A Wall
Wolf Richter www.testosteronepit.com
The strongest and toughest creature out there, and maybe the smartest one, that no one has been able to subdue yet, the inexplicable American consumer has hit a wall. And it showed up in a prosaic but ugly 8-K filing by Visa.
Credit cards are a true anomaly in these crazy times of ours. The yield on 10-year treasury notes swooned to a new record low of 1.61%. Interest rates on savings accounts and most CDs are so close to zero that you can’t see the difference on your statements once you round to the nearest dollar. 30-year mortgages come with rates of under 4%. And yet, credit card interest rates are where they’ve always been: high. In many cases well into the double digits.
Consumers have struggled with them. Before the Great Recession, when credit was unlimited and easy, consumers charged the cost of improving their lifestyle to the future to make up for the long decline in real wages—that haven’t kept up with inflation since the wage peak of 2000. Read.... “Confiscate, Secretly and Unobserved.”
Then it all ended. Consumers defaulted on their credit cards or paid them down or off and cut them up, and the smart ones were able to roll their balances into a home-equity line of credit and then let it go into foreclosure, thus getting rid of debt in the Goldman Sachs kind of way, and overall credit card balances dropped. Transactions shifted to debit cards, which appeared to be the more prudent way, and banks pushed them because they could squeeze higher fees out of merchants. But declining credit card debt drove the Fed ragged; the last thing it wanted was for consumers to get out of debt. So it must note Visa’s 8-K with relief; consumers appear to be back on track to becoming life-long debt slaves whacked on a monthly basis by high-interest credit-card debt.
Visa’s aggregate payment volume was down 3% in the US for April and stagnated through May 28, compared to the same periods last year. Behind the aggregate, bad as it was, hid an astounding shift: credit card purchases actually jumped 8% in April and 10% through May 28; but debit card purchases dropped 12% in April and 8% in May.
Media pundits, in trying to explain away the shift, fingered new regulations—the infamous Durbin amendment—that decimated the debit-card fees Wells Fargo, Bank of America, JPMorgan Chase, Citi, and hundreds of other banks charged merchants. And so, the pundits explained, the industry responded to the loss of revenues with new pricing plans (Visa’s plan is currently causing some rumpled eyebrows at the Department of Justice), and consumers responded to these new pricing plans by plowing back into high-interest credit card debt. Here is one that made the rounds (American Banker):
The sluggish performance was driven by declines in debit-card purchases, which have taken a hit in recent months from new regulations governing how card networks such as Visa and MasterCard handle debit transactions.
A mind-boggling non sequitur. Even the inexplicable American consumer can’t see the fees merchants are charged for credit and debit card transactions. When consumers whip out a card, they choose between borrowing at high interest rates (avoidable only by always paying off the entire statement balance) and having the amount taken out of a checking account in real time. But the fees that the merchant pays don’t show up in this decision process as they’re unknown to consumers and don’t impact them directly.
To account for such a drastic shift, a deeper, gloomier pattern emerges. The inexplicable American consumer, pushed to the max, with checking accounts dry and debit cards useless, is trying to hang on by the fingernails to a lifestyle that is edging out of reach. In grasping for it, they’re using every means they can, even high-interest credit-card debt which will haunt them for years to come. A return to this scheme is not exactly a bullish sign for the economy, though it’s good for the banks (until the inevitable write-offs start wreaking their havoc).
Tough as the American consumer may be, his or her other side, the American taxpayer, is about to be saddled with another multi-billion dollar bail-out of mortgage loan losses from a Federal Housing Authority (FHA) lending program that has been offering ultra-low down payments since 2009. Alas, it’s turning into a nightmare. Read.... FHA Sub-Prime Defaults At 9% In California.
And here is a hilarious and biting cartoon by Ben Garrison: "Welcome to Sh*t Creek.
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Always pay in cash during normal RL shopping.
For online shopping never use debit cards, only credit cards - for liability reasons.
Always PIF at EOM.
I'd be curious to know if the increase in credit card transaction volume translates into increased balances. I know a lot of people (including myself) use credit cards for air miles and such but never carry a balance.
So, I take it that consumers had been using debit cards, and not credit cards, to use the money they had in their accounts to buy things, and to avoid paying the high fees associated with credit cards.
Now, I read here that consumers are using their debit cards a lot less, and their credit cards a lot more. From other sources, I read that consumers aren't making more money lately. And it seems that most consumers have no idea about interchange fees and other costs between credit card or debit card issuers and merchants.
So why would consumers stop using debit cards, which require one to have money on account at that moment, and resume using credit cards, which cost far more in the end but do not require one to have money on account at that moment?
I'd guess it's because consumers need or want to buy things, and they don't have any fucking money.
But that's just me. What do I know? I thought housing was in a bubble starting in about 2001, and everybody told me I was an idiot not to take out the biggest refi I could qualify for. So what the hell do I know.
YOU'VE DRIVEN ME TO FIND GAINFUL EMPLOYMENT PHUCKERS! YOU'RE GONNA PAY FOR THIS!
Credit card is better fraud protection then debit card.
I get 3% back. Only use it when cheaper than cash. Used to use it for business expenses. You can make a little on that if you fly a lot for work. Pay a month in advance to avoid fees.
Credit card for flights, car rentals and emergencies, always paid in full. Older vehicles, boat, motorcycle were paid for cash and never new (only the rich and the poor buy new).
Bought a repo house for price of the lot, gutted it and went all new except for the exterior framing and hardwood floors with an additional bed bath upstairs by dropping the 10' ceilings in the back half and ended up with 4 bed 2 bath house for less than half of market for a 3 bed 1 bath before the boom.
Amazing how little I need to do fine without anyones hands in my pockets except for laughably low property taxes in a semi-rural area.
A lot of hard work to get this way but it was worth it.
No bankster gets shit from me.
You don't know that little song yet?
http://www.youtube.com/watch?v=_0GzNgpnriw
I've got metal tucked away, and damned if I'm going to give it up for cheap plastic stuff, throwaway cultural artifacts, and meaningless vacations that supposedly prove to indebted and fat Americans how rich and healthy and adventurous they are.
So yeah, you can call me "tapped out." I'll just nod my head in agreement.
As long as zero down loans (or near-zero) are handed to out th ehouse prices will continue to plunge as these default for an entire generation. Add to that the brisk housing construction that adds even more supply to the already millions of empty boxes....it's a mess.
Who pays the whopper of insurance on these vacant boxes? I read an empty house costs almost five times to insure.
I drive for a living through rural Virginia and this year I have seen numerous vintage cars sitting in front of houses with "for sale" signs on them.
I think the American consumer (wealthier ones) are about tapped out. November can't come soon enough for those of us not reaping the stimulus money.
Some useful quotes you may enjoy that I've collected recently:
“Armaments, universal debt, and planned obsolescence - those are the three pillars of Western prosperity. If war, waste, and moneylenders were abolished, you would collapse. And while you people are overconsuming the rest of the world sinks more and more deeply into chronic disaster.” - Aldous Huxley, Island
“Some, like most bankers, are so unfit for success they look like dwarves dressed in giants clothes.” - Nassim Nicholas Taleb, The Bed of Procrustes
“In the last three plus years, central banks have had little choice but to do the unsustainable in order to sustain the unsustainable until others do the sustainable to restore sustainability.” - Mohamed El-Erian, Pimco
"There can be no liberty for a community which lacks the means to detect lies." – Walter Lippmann
"It is forbidden to kill; therefore all murderers are punished unless they kill in large numbers and to the sound of trumpets." – Voltaire
“Where there is fear, there is silence.” - Anonymous
“After World War II many women stayed home and raised families. But since the 1950s they have been forced increasingly into the labor force for what are called two job families, and now, three job families (with only two family members). If you project labor participation rates, by the year 2020 every woman will have to work 18 hours a day or economic trends will falter.” – Economist Michael Hudson
"If a man has an apartment stacked to the ceiling with newspapers, we call him crazy. If a woman has a trailer house full of cats, we call her nuts. But when people pathologically hoard so much cash that they impoverish the entire nation, we put them on the cover of Fortune magazine and pretend they are role models." - B. Lester.
[The Military Industrial Complex] renders among our political leaders almost a greater fear of peace than their fear of war. – General MacArthur
“Whose hand shall control the instrument of war?” It is late to ask. It may be too late, for when the hand of the Republic begins to relax another hand is already putting itself forth.” – Garet Garrett
“Finance today achieves what military invasion used to do in times past. So the new mode of warfare is financial, not military. It’s much cheaper and it’s much safer for the country doing the attack.” – Economist Michael Hudson
Some stories you might enjoy:
Some of mine: A Gun to Literally Silence Speech and Why I No Longer Watch Television
Also, an update on the Fukushima disaster and an article by Bill Black on how the powerful establishment tried to destroy him.
If the government, banks, insurers, and automakers can "charge it" why not the populace?
Moral Hazard coming home to roost in so many ways...
Make the BLOOD-sucking VAMPIRE-zombies learn what it is to have to work for a living....CANCEL all DEBTS now.....It's the only way out of this horrendous FIASCO that they created, with their MBAs and their mental illness
credit card companies and banks share onr thing in common they are both thieves, Never thought that I would see people putttting their monies in a bank then paying the bank to take it out again,
Imma credit card bankers deadbeat and I don't need no stinking debit card.
or.......
consumers know the 'new' game and are maxing credit cards with no intention of paying the balances
-JB
I have expected the U.S. consumer to hit a wall for the past 12 years, and I have been dead wrong. Even the collapse of the housing bubble has not brought about an end to the orgy of sensless trinket-buying by the American public. I expected many of the nail shops, flower and candy shops, Starbucks, and department stores to close. Didn't really happen. My cousin's horseback riding lesson business has recovered, as has my brother's chartered flight company, and another cousin's wall-papering business. I am happy for these folks, but still amazed at the ability of consumers continue living large, with no real increase in incomes.
Those are all businesses that cater to the top 10%, to whom virtually all income gains of the past 4 years have gone.
The "consumer" economy has become severely bifurcated. You don't see any tv commercials for "middle brow" products or services anymore, much less for shit used by the working class.
46M people on food stamps and Tide laundry detergent has become the most widely shoplifted product in stores.
Aggregate totals don't tell the whole story. Especially credit cards--at least half the population's credit scores don't allow access to any credit but Rent-to-Buy appliance operations.
pay in full monthly
easy bookkeeping
20 year position in a midwest company. In business in 14 midwest cities for over 40 years. Manufacturing equipment being sold at auction next week and 300 folks looking for work. In the end it will be government workers of all ilk versus NGovt.mint employees. Oh, by the way, the lovely state of Illinois is about to pass a 5% tax on all satellite TV providers. This on the heels of a 3 to 5 percent uptick in state income tax level. 85 billion in uncovered state pension plans. Turn out the lights, the party is over.
'Free' trade isn't so free..... When the world is engaged in a race to the bottom in paying the lowest possible wages, OWNERS benefit and workers suffer.
BOTH political parties in the US have sold out the majority - factories get moved overseas or cheap workers get brought in when you can't relocate the work (be it illegals working in meatpacking plants or H1B visas in hi-tech).
A few saw this coming.
http://www.youtube.com/watch?v=4PQrz8F0dBI
Send a few of your democrats to jail instead of to office. That would be a good start. Illinois is a corrupt mess and it's been in democrat hands for decades. Go figure.
Deerhunter, the reason your company has blown out is that in today's world, actually delivering superior product is not what matters. What matters is lobbying. If Illinois is going hog-wild on taxation, you can bet that there is somebody who is exempt. Bet on it!
http://www.zerohedge.com/news/presenting-greatest-roi-opportunity-ever
Deerhunter, the tragedy of your midwest company is not the result of tapped out U.S. consumers; it is the continued hollowing out of the American industrial base due to globalization. And despite your state's increasing taxes, I won't be surprised if consumer spending continues apace.
right, because employment and wages are so good. Winning!
Debit...keep only what you need as a balance....credit unions vs. banks.....regional (NON-BIG) banks only if no CU close by...
Cash.....rent....utes...gas/oil...food.....low in the water......off the grid as much as possible.
NO credit used.....
Using the internet ALONE is 100% exposure...no matter what the "username/password/screen name/avatar is...
Your IP address cuts through all that baloney.......other than that.....off radar here as much as possible.
Consumers are about tapped out. I know I am. I got laid off 2 months ago and can't collect unemployment because the employer fought it tooth and nail. Bitchez! I've had plenty of interviews over the last 2 months but nobody has said they want me yet. I don't buy anything unless I absolutely need it. Right now it's just food and gas for the car. I'm thinking about going the self employed route again. Or I could start writing again. I am not a happy camper.
When the shit finally does hit the fan, I'll have my pitchfork ready. And so will about 100 million or so others. There's no place for the banksters & fraudsters to hide. And all that high priced security doesn't mean a damn thing when it all goes down the tubes. Heh heh, paybacks are a bitch.
I pay with cash, whenever there is a discount for doing so.
who the fuck -1 ed this?
Like buying gold..
"To account for such a drastic shift, a deeper, gloomier pattern emerges. The inexplicable American consumer, pushed to the max, with checking accounts dry and debit cards useless, is trying to hang on by the fingernails to a lifestyle that is edging out of reach."
Of course, the CNBC shills will point to this as anecdotal evidence of an improving economy instead...
I use my debit card as a credit card, always. So am i credit or debit?
Benefit your local small businesses by paying in cash or check rather than debit or credit. It saves them the fees and puts more in their pocket, not the banks. If you get discounts for cash, like PM transactions, use cash or direct transfer. Otherwise, using debit or cash for most large Corps/E-tailers is better since it offers you better account protection and they already build those costs into their products. Buy local, pay cash, starve the Beast...
...plus I like to leave it to the locals on how they want to run their accounting.
I use my debit card as a credit card, always. So am i credit or debit?
Why not use an ATM card as a Debit card, and avoid ALL fees???.
Whenever you charge something, Credit or Debit, use an ATM card, and tell the vendor Debit,and enter your ATM PIN#.
Presto............your out the door.
And you have used cash to pay,so no bills at end of month.
Just remember to deduct charges from your checking acct.
Even the inexplicable American consumer can’t see the fees merchants are charged for credit and debit card transactions. When consumers whip out a card, they choose between borrowing at high interest rates (avoidable only by always paying off the entire statement balance) and having the amount taken out of a checking account in real time. But the fees that the merchant pays don’t show up in this decision process as they’re unknown to consumers and don’t impact them directly.
Sorry Mac, anyone who has Credit Cards know merchants are charged fees whenever they use them.What the majority doesn't stop to figure out is they impact them directly.
You think the Merchants are not putting those 2%-6% Bank fee's into the COST basis of their merchandise/food,etc and passing it all BACK to the Consumers?.
Hell yes they are.
That's why Chinese restaurants give you a discount, such as no sales tax, if you pay in cash. They dislike paying credit card fees.
The old school rules were that the fees to use a card as "debit" were cheaper than to use it as "credit". So your bank incentivized you to use it as a credit card. Now that the debit fees are higher, it matters less--almost even.
Either way, a debit card is always treated as a debit card transaction even if you used it as a credit card. the only difference was in the fee they could charge the merchant.
Think about this--when you used it as a credit card, did the money still come right out of your checking account immediately? Yes, it didn't get added to a CC balance.
Debit has always been more expensive to use for the account holder, never cheaper. Are you sure Visa recoreds it as a debit (direct to the bank) bypassing its service, or a credit charge that visa can bill for?
I think Visa gets it both ways first they charge it as a credit card, billing for the credit service, second they get the money at no cost and instantly. Free use of instant money you can charge others for. Must be nice.
Either way the banks get their fees, that's what it's all about.
I use my credit card as a debit card... always PIF (pay in full). No way I want someone having direct access to my checking account. Much better to have the credit card company as intermediary. If someone gets my number then I make a phone call, potentially face a $50 liability, and pass the mess off to Mr. Credit Card Issuer.
(Direct access is just one more thing that makes the Electronic Wallet so insidious.)
Cut up your debit card and get an ATM card. BofA did that to me twice, and I cut them up, sent them back, and asked for a debit card. Debit cards leave you liable to fraud and months of BS trying to get our money back. Credit, ATM, cash, or nothing.
It's getting harder to pass the mess off to Mr. Credit Card Issuer. A friend of mine has an Amex card and someone got her number and bought a lot of stuff with it. She had a hell of a time with Amex getting them to "fix" it. She had to jump through hoops before Amex finally took care of it. And it took a couple of months till Amex did.
It's getting harder to pass the mess off to Mr. Credit Card Issuer. A friend of mine has an Amex card and someone got her number and bought a lot of stuff with it. She had a hell of a time with Amex getting them to "fix" it. She had to jump through hoops before Amex finally took care of it. And it took a couple of months
Maybe she's learned a lesson to NOT EVER POSSESS an AMEX CARD.
Vultures, and help fund the baby murderer's.
(IMHO is totally, morally wrong).
I know opinons are like - - - - - - - - and that's mine.
It may have taken some time and paperwork but BY LAW the liability is $50 maximum (usually waived). Stolen card is a non-issue unless there's a fraud investigation. Of course with Capital One it's "No Hassle" - funny, an entire marketing campaign promoting that your company complies with the law.
Sign of the times....
Back in 2000, I charged 5 suits to my AMEX over in Hong Kong....
I was there, but had the shipment sent after I got back...none of the suits fit, and I wanted a refund..
NO problem from AMEX....one letter and a phone call took care of it....swore to be an AMEX user after that....Master Card gave me a hard time (charged one suit on that card back then).
Now I read your post. It has to be the times....different circumstances granted...but still...
That sucks. And it would have been worse if it was a debit card.