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Friday, August 2, 2019

Which is Worse - A Nation With Credit Cards or Without..

Once upon a time not all that long ago, there were just 4 credit cards - American Express, MasterCharge (now Master Card), BankAmeriCard (now Visa) and Diners' Card

They all were difficult to get credit approval, charged annual fees and in the case of AMEX, you had to pay the entire balance at the time of your bill

This ensured that for the most part, only responsible people with actual means to repay the card debts could get them; everyone else had to pretty much pay cash or write checks
Now today, anyone and their child, dog and deceased parent can get one and as a result everyone has purchasing power even if not actually having the means to pay for Fendi or Prada

But they have the available credit and to a store, that's all that matters..

We wonder what life would be like if the only way someone could pay for something at a store was with cash, check debit card or the old fashioned AMEX way where 100% had to be repaid instantly
What would happen to businesses and on a macro level, the US and global economy?

Simple..  It would go Kaput within 24 to 48 hours

The global economy would literally crash to such a seismic extent that it would never ever recover - that's how leveraged the financial system is in the retail world
Let's use a simple example..

A single woman in her 30s makes $48,000 a year which comes to $4,000 a month;  Figure 25% of that ($1k a month) is put aside for income taxes so she has $3k left

Factor in mortgage, utilities, car payment, all the insurances - home, car and health,  as well as food, gas and all the other basics of life and realistically this woman would have at most $300 which comes out to $75 a week..

If the only way this person would be able to buy anything else was through cash or debit card, she'd be severely limited and supremely screwed
Retail businesses would be even more so especially if you did away with layaway plans and deferred payments or interest for X months...

It's the little gimmicks to get people who do not have much if any money to spend which keeps the economic wheels running

But which is worse: an economy that survives only by getting and keeping everyone in debt, or that credit card debt nationally is over $1 Trillion dollars with most personal card debt never to be repaid
Perhaps if we lived in a society where access to cards was extremely limited, it would force businesses to dramatically lower their prices to something more affordable and commensurate to its true value

Then again businesses are real bastards when it comes to giving customers anything close to a real sale so they'd probably all liquidate and foreclose en masse vs giving a 1% discount beyond their fake sales..

So we're a debtor nation.. we owe on our homes, our cars, our student loans and our credit cards and our government owes money to the world, mostly to the Federal Reserve

The plates keep spinning and everyone seems blissfully happy..