Charge accounts and credit cards have always been around.
But I remember back when I was a kid in the 60’s & 70’s few adults had or used them. They weren’t as easy to get, and not as many businesses accepted them.
Today, every business under the sun takes credit cards, and even people with bankruptcies can get them. My observation
(no cite, just a personal observation) is that some people with a credit card tend to buy things they wouldn’t buy if they had to pay cash. Meaning they might be buying things they actually can’t afford. Especially big ticket items. Go into a Best Buy and watch all tha credit card transactions as compared to cash.
So while that has caused people to go broke, bankrupt, etc., it still = retail purchases being purchased, equaling more consumer goods being made/sold, = jobs.
So…even though this cycle has resulted in more personal bankruptcies than any other time in history, it also has kept the retail machine chugging along, and a huge variety of goods are available.
Does this mean that charge accounts and credit cards are good or bad for the economy?
What if most people had to actually pay cash for things like they did years ago? Would there be less choices in the retail arena? And with less choices would prices be then be higher? And with a smaller variety would that = less jobs?
What would our economy be like (over the last 15 years) if credit was not as available as it has been.
I would guess that credit/debit cards are good for the economy overall, but (like a lot of other things) bad for certain people and under certain circumstances.
For one thing, I’m trying to visualize the internet ecomony without electronic transactions, and I just can’t see it being anywhere near as large as it is with them.
Well, the existence of credit cards increases the M4 money supply (the loosest measure the the money in circulation).
Quite what impact the spread of credit cards has is therefore arguable, but such an increase in the money supply may either lead to inflationary effects or an increase in national output, depending on how the rate of transactions reacts. I would suggest that credit cards have increased this rate and thus have lead to a consumer spending-fuelled boom, but that is speculation on my part.
Interesting thought, it didn’t cross my mind that there would actually be a study of the phenonomen.
I’ll have some kind of look 'cos I am actually quite intrigued, but we have the Queen’s Representative coming to the office this afternoon (don’t ask) and I have a meeting tomorrow and this New York thing to prepare for…
I am certain there are several, esp. in the finance journals. A quick check with BIIS seems to turn up some interesting looking items as well. Consumer credit facilities are certainly an important aspect of liquidity and a serious concern in the developing world, so I am sure there is stuff out there.
Is it profitable to sue you? Otherwise I am afraid I can’t bring myself to indugle your invitation.
A quick search run at SSRN.com uncovered a wealth of research as I suspected. BIS.org also has some on electronic money supply effects. No time to read at the moment, but it was like being a kid in a candy story. Must control myself.
Good for the retailer because he gets paid right away. The lender is playing a statistical game. As long as he wins more than he loses then he wins.
What do the consumers buy though? If they buy junk that depreciates rapidly then they lose even if they pay it off.
Look for some distribution of wealt statistics. The system runs on psychological manipulation and most people are losing. If we have a collapse it will be bad for most people but the superrich will be richer. If a billionaire loses half his wealth on paper but prices drop 75% he is twice as rich as he was.
do a seach on “depreciation of durable consumer goods”
Two and a half years of us having these arguments and Dal still doesn’t realise that money has no use nor value other than the fact that you can buy things with it.
People like having new goods, Dal. You need to learn to find somewhere in your happy place for that.
Col:
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Is it profitable to sue you? **Depends on whether you think you can win…
Depends on how many people go bankrupt. Credit card debt is dischargable in bankruptcy court.
If the economy/jobs continues to get bad, and we get another depression situation, then the huge amount of credit card debt to be charged off will make the situation much much worse, just as margin buying made the stock market crash much much worse.
If you additionally have lots of foreclosures on homes, causing housing prices to decline, you will then have 2 large forces contributing to making any economic decline go from bad to worse.
With no home equity and much decreased credit card sales, consumption/retailing will slow to a dribble for a very long time.
In addition to the “monetary liquidity” credit cards provide, they also provide a kind of “transactional liquidity.” If you decide to buy a dining room set, you don’t need to go negotiate a loan with your bank. The credit card agreement you already have with your bank is a standard, global agreement that saves a lot of time and money that would otherwise be spent on the transaction costs of negotiating a bunch of little loans (of course more small purchases would be made with cash if credit were not readily available).
Another “transactional” benefit is that it is not usually necessary to carry around lots of cash which is easily lost or stolen.
The acceptance of credit cards internationally (outside of the third world) has also decreased the need for a lot of traveller’s checks and currency exchanges–making consumer purchases from overseas’ vendors possible also increases consumer choice and eliminates middleman costs.
So, in addition to the big effect on outstanding debt and monetary liquidity, I think there are some transactional benefits which have an economic impact but which may be hard to quantify.