During the 80’s and 90’s when recessions occurred our government was able to give the economy a shot of what appeared to be “free money” and to get consumers spending again. Since, those recessions occurred when most believed that money was plentiful and credit card debt was cool; it did not take must incentive or stimulus to get consumers to spend money. However, this recession differs due to the greed and bad management among our financial industries which literally caused a negative money glitch to take place. Many consumers watched their life savings disappear and or be stolen right out from under their noses without having any recourse of recapturing those funds back quickly. Debt has become a dirty word and even if consumers wanted to risk going into debt now the banks are not lending money.
The Federal Reserve issued a report this week revealing that credit lending decreased by $21.6 billion for the month of July alone. Revolving credit fell by $6.2 billion while non-revolving credit (cars and student loans) dropped by $15.4 billion. Economists are saying that this is the longest successive decline since 1991and it is five times larger than they originally predicted. Many people are unemployed or underemployed and don’t qualify for loans, while individuals that are working are stressed and overly cautious because of job insecurity.
Some economists have theorized that the recession has ended, however the road to recovery will be a longer progression than predicted because two-thirds of the U.S. economic activity is generated through consumer spending. The Cash for Clunkers program appears to have provided temporary stimuli to the auto industry; however, the big bang that usually occurs during the back-to-school season did not happen this year. And if unemployment continues to rise higher over the next few months, holiday sales will most likely be a lot smaller than last year; thereby, creating yet another blow to our slowed economy.
Based on these facts alone, I’m sure you will agree that consumers will not be spending our way out of this money glitch recession. Until American consumers regain that security of knowing that we do indeed live in “the land of plenty” with jobs for everyone who desires one the recovery process will to continue to drag. This is unfortunate because companies will not be hiring if consumers are not making purchases and the recessional rotation will continue. So how does one provide incentive to consumers whose average net worth has plunged downward by almost 22% since 2007?
The answer to the problem is quite simple just start creating positive money glitch situations. On the other hand, to get everyone to cooperate is the real challenge because it requires faith to go against the “norm.” Consumers will make purchases on items that are actually for sale at discounted price. During a recession consumers become very “conscious” of over-priced items. Retailers cannot mark-up products and then mark-down to the regular price and call it a sale.
Consumers have become very smart and frugal with their overall spending and will only respond to great deals. Manufacturers and retailers should offer a true 20% discount and watch consumer spending increase. Conversely, this concept will be examined and discussed in further detail in a later article; for now let’s end this week with a quote by Suze Orman, “Money has no power if its own. You alone are the power source.”