This holiday season, credit card purchases have jumped 7% in November and early December. A survey by Consumer Reports found that on average, Americans are planning to spend 6% more on the holiday season then last year.
All of this extra spending can help boost our economy by consumers spending more than their incomes. Also, because of a decrease in the unemployment rate, consumers have increased confidence and are more likely to borrow.
However, spending by credit cards is a very risky move for our economy. If consumers spend more than they can handle, it can cause a significant increase in American debt which contributed to the first financial crisis in 2008. The article even goes on to say that "about 6 percent of consumers, or 14 million Americans, are still paying off credit card bills from last Christmas."
So, my question to you all, is it better that Americans are spending more on Christmas this year than they did last year? Or, do you think the fact they're spending on credit is significantly more dangerous and thus will actually harm our economy more than help it?
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6 comments:
I don't think holiday shopping can significantly effect the economy whether the purchases were paid in credit or cash. To actually boost the economy, shoppers need to consistently spend throughout the entire year. They need to make sure they don't spend more than they can handle, but of course, this world isn't perfect and there will always be people in debt. Despite the downfalls on paying with credit, I think the pros out way the cons. Although paying with credit could potentially lead to another crisis, spending more could bring the economy back up again. It's a risky call but if shoppers keep a budget, the economy can really benefit from it.
I think using credit cards should be accompanied by caution and discipline. Credit cards are helpful if they are used right and consumers pay off balances on time. It depends on the people if credit card spending can cause additional debt. It can be a tricky situation since it is difficult to pay down high interest rates. Also, Gallup mentioned that retailers spent a lot this year for advertisements and discounts to encourage people to buy. This holiday spending may not even make a difference in retailer’s earnings. Nonetheless, this holiday spending will help boost the economy. Besides, consumption makes up a big portion of GDP. According to Gallup, consumer spending increased over the five-week holiday period. This is a good sign that people are more confident this year and hopefully that continues next year.
http://www.gallup.com/poll/151793/Strong-Start-Holiday-Season-Leads-Uptick-Spending.aspx?
This post somewhat reminded me of what started the Great Depression. People were buying a lot, but it was all on credit so money was not really being circulated and once it caught up to people, everything crashed. I don't think our recession is at such a critical point yet, but I think American's need to be caution when they spend, especially on credit. When credit bills get paid, it will help the economy. But if most don't, we could see another big drop on Wall Street
i agree with Elise. I don't think a small boost in spending over a short period of time is really going to do anything. Sure it will help the businesses in the short term, but it isn not going to suddenly get the economy out of the gutter. However, the extra spending shows that consumers are feeling confident enough to spend more money. It could be a sign of better times to come.
I personally think that if you are in debt from previous years of spulring on things with a credit card and you are in over your head, then you should stop. It is only going to make matters worse for you and the country. There is already too many people in debt as it is so why keep going? I think it is harming our economy way more than it is helping it especially since it takes so much longer to pay all the debt off.
The term Glass Cannon seems to ring true when it comes to our economy. It packs a big punch and everything and seems amazing but a light little tap and the entire thing goes kaput. Our economy seems to fragile especially when we start relying on debt and credit to borrow money all over the place. Soon you start borrowing more and more money until you have so much confidence in the economy you borrow money you know you can't pay off. Then all that is needed is a little tap, and you have everything crashing down again and another recession hits. Our economy is too trust based. Its great to make things run fast and make everything seem smooth, but under all that smoothness you have this messy, catastrophe of "I borrowed money from this guy who borrowed money from this guy who borrowed money from this guy who borrowed money from this guy who....." and all that is needed is one person to lose that trust in someone, and the entire system blows up.
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