Debt Cutting Slows Down The Economy; Really?
An article on the Wall Street Journal website titled Debt-Cutting Will Slow Global Growth prophesized that debt cutting efforts by the United States and other countries, and by all the consumers, will slow economic growth for many years, which wouldn’t be a good thing for most economies.
It’s an interesting premise, and it makes a lot of sense. It’s the reason banks are raising interest rates, because more people are paying off their credit cards, as well as defaulting on their credit cards, and banks aren’t generating the revenue they were in the past as debt falls. It’s the reason banks are loathe to work with mortgage owners to bring their interest rates down, because banks make their money off those interest rates over a 15 or 30 year period. It’s also the reason why there are fewer credit card offers going out to the marketplace these days.
It’s the reason retail stores were in such financial difficulties in 2008 when people didn’t have money to spend, and why even though 2009 was much better than 2008, it was said overall that it wasn’t the greatest holiday shopping season in history. Indeed, more people shopped where they could get discounts, and fewer people splurged on big ticket items than in the past. Of course, the costs of some goods also came down, most specifically flat screen TVs and laptops, which helped out greatly.
So, let’s talk about the concept of slow growth of the economy. To me, if it’s growing, even slowly, that’s a good thing. I’m still trying to figure out how it’s growing when the unemployment rate hasn’t really gone down, but I’ll let them use whatever figures they do to come up with that for now. The truth is that it’s more important for all of us to control our debt until unemployment starts going down. It’s obviously important for someone to keep screaming in Washington that the deficit keeps going up, though it doesn’t seem to matter which party is in power in trying to get the debt, aka deficit, to come down.
Everyone seems to be in a hurry to get the economy to improve, which I don’t mind, but they want it to improve more than it might have already done, and they want it to improve faster and bigger. Remember my post the other day about Chase posting a large profit, yet having their stock price decrease because the brokers wanted the profit even higher? These are some of the same people who put us into a financial mess to begin with.
I say let’s control our debt, which the banks are obviously already helping by increasing interest rates, adding new fees, and limiting the number of new credit card holders. Being more fiscally responsible can’t hurt anyone, including the government. Well, it might hurt some specialty stores, which isn’t great, but better those stores than the large ones that create multiple jobs. That sounds cold, and as an independent consultant I understand what small businessmen go through. But as Mr. Spock once said, “The needs of the many outweigh the needs of a few.”