Credit cards, Recession and the 2008 Elections
© 2007, Libertiny Financial LLC

I'm always amused by the various government agencies and their associated "think tank's" specific definitions of when we're in a recession. They use very specific criteria and are extremely precise in their calculations for the start and end of an event that by it's nature is somewhat vague. It reminds me of a test that I took in one of my engineering classes during undergrad school: My answer was given out to 8 decimal places accuracy thanks to my handy calculator. Of course my answer was completely wrong because, as my incensed Irish professor pointed out in bright red ink all over my blue book, "I had forgotten to check my answer against reality."

Is the U.S. in a recession? Of course it is. We have been for some time now because real growth in wages vs. the cost of living has been stagnant at best for both the poor and middle class. That's all been hidden by people first cashing in on the stock market boom of past years and then taking loans out against their homes. Combine this with our continuing use of expensive credit card loans to pay for the basics of living and we've just been artificially putting off the recession.

Well, we're out of quick fixes now, so we're in a recession and will be at least through 2008.

Where do I get my information? Businesses who make money from consumer loans--banks, credit card companies, and mortgage companies. There aren't that many commercials any longer about getting a 2nd mortgage, refinancing a first mortgage or a obtaining new credit card.

Credit card companies and issuing banks are tacking on a variety of outrageous fees (I thought Ticketmaster was bad) to just about everything. I had a fascinating conversation with some folks at a bank a few months after I had closed our accounts there and transferred to a new financial institution. Apparently, they credited my closed account with about $0.05 worth of interest after I closed my account. This automatically reopened my bank account. Unfortunately the $0.05 was below the minimum required to have the free account, so they started charging me a monthly fee for my account. Eventually they sent me a bill to pay the fee--all because they owned me $0.05. A long phone call ended the problem. But the underlying cause is that banks and credit card companies are going all out to find ways to make money since they're underlying product (lending people money) is not making a profit.

Another interesting trend that shows how banks and credit lenders are trying to make up for a shortfall in profits is the reduction in the time that they grant to pay your credit card in full. We use a single credit card to pay for everything that we purchase. Then, we pay the full amount off on time each month so that we don't incur any outrageous fees or interest. I've done the math, and over the last few years the time allocated from the date that your statement is printed and mailed to you, to the date that the bank or credit card must receive your payment has decreased significantly. In fact, assuming that everything goes perfectly (your statements gets mailed on time, it's delivered by the post office on time, and the post office delivers your payment on time) you have at most 3 days in which to pay your bill. This means that if you happen to not be home for any reason during that 3 day window, you're going to incur a huge amount of late fee penalties and interest payments. On paper, there are even some banks that have literally made it impossible to pay your bill on time using the traditional payment methods (mail the statement, write a check, mail the check back to the bank).

There are solutions such as transferring money between your checking account and the credit card. But this assumes that you want and have a bank account with the issuing credit card company.


Why does this indicate that we're in a recession?
The general business of loaning money is one of America's strong industries. Businesses tack on fees and other "bells and whistles" when the underlying product or service is no longer profitable. The airline industry is a prime example of this weak business model (fees for food, particular seats, how you make reservations, etc). Since we're suppose to be one of the strongest nations, if not the strongest, in the financial industry, it's a clear indication to me that we're in a recession when this industry has to resort to tacked on fees as the way to make money.


How does this all wrap up into the 2008 presidential elections?
A lot of the reasons why we're in a recession have to do with:
1) The nearly uncontrolled spending pattern of our federal government.
2) Our import of more "stuff" then we sell to other countries. This is due to a lack of our federal government having the courage to write and enforce fair trade agreements with other countries. And I'm not talking about writing and enforcing lopsided agreements such of NAFTA.
3) Onerous laws that regulate everything to death--a great reason for companies not to open or expand businesses within the U.S.
4) The outrageous cost and poor quality of our health care system--no, Canada's system is not the answer.


In a recession, there are three things that we can do as individuals and the government to extract ourselves from the situation:
1) Increase our wages/revenue.
2) Cut our costs.
3) Live within our means--really just a combination of 1 and 2.


Vote!
When you're voting in November 2008, I encourage you to vote for someone who has actually held a real job and has had to deal with living within an average income/cost structure. The rich kids in both the Democratic and Republican parties have had their chance. Elect a President who has had to work for what they have. Your vote in this manner will give us the best chance of getting out of our present recession and fixing the root cause issues that have put us there.