SALON

Monday, Nov 3, 2008 7:12 PM UTC

The credit card grinch who stole Christmas

The new president will face an unfamiliar problem: Lenders are discouraging Americans from pulling out their plastic.

By

Topics: 2008 Elections, Globalization, How the World Works, Christmas, Credit Cards,

As investment guru John Mauldin writes in his most recent newsletter, whoever gets elected president on Tuesday will face a huge economic mess. Mauldin, a former member of the executive committee of the Texas Republican Party, believes Barack Obama will win. But he doesn’t envy him the job.

Here is what faces President Obama. The economy is in a recession that is getting worse by the day. This is the first consumer-led recession in 27 years. Unemployment is rising and the time between jobs is probably over ten months by the time he takes office. The U.S. deficit is likely to be soaring above $500 billion. Consumers are retrenching, hit by the double whammy of falling home prices and seriously lower stock values and retirement savings.

You will not have the luck of George Bush to have consumers borrow $500 billion a year from their homes and resort to a negative savings rate. Banks will be cutting back on consumer lending, and consumers will be cutting back on spending and increasing their savings.

Evidence that banks are cutting back on consumer lending arrives today from Bloomberg, courtesy of a recommendation from Naked Capitalism.

Home Depot Inc., Sears Holdings Corp. and other retailers may lose as much as 8 percent of their holiday sales this year because lenders and stores are clamping down on financing.

Almost a quarter of shoppers say banks cut the spending limits on their credit cards, according to a survey by America’s Research Group, which also provided the sales-loss estimate. More people are being rejected for new cards, hurting sales for bigger purchases. Demand is being pinched just as retailers prepare to enter the holiday selling season, which accounts for as much as 35 percent of their annual revenue.

And why are banks tightening the screws on the poor consumer? Another tidbit from Mauldin’s newsletter is awfully suggestive. According to Greg Weldon, publisher of Weldon’s Money Monitor, McDonald’s is now “the second largest ‘merchant-vendor’ for credit card use.”

This suggests that many consumers are in serious distress when they need to get their $4 Big Mac and fries with a credit card.

Exactly. If people are resorting to their credit cards at McDonald’s, then maybe it isn’t the smartest bet to raise their credit limits so they can go crazy at Christmas.

If Barack Obama is elected the next president of the United States, there will be much rejoicing among the people who voted for him. But it might not be the best time to pull out your plastic and splurge in celebration. The retrenchment that is coming will be brutal, and no president, no matter how seemingly transformative, will be able to do much to ease the short-term pain.

UPDATE: Numerous readers have pointed out today that many McDonalds customers use their debit cards to pay for meals, and it is not clear from the Weldon citation whether the “merchant-vendor” designation includes such payments.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.

Next Article

Related Stories

More Related Stories

Featured Slide Shows

The week in 10 pics

close X
  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11
  • Lisa Montgomery embraces her nephew Thursday after a tornado tore apart her home in Cleburne, Texas. The twister killed six people and destroyed entire swaths of the North Texas town.
    Credit: AP/LM Otero

  • Jack McMahon, the defense attorney for abortion doctor Kermit Gosnell, speaks outside the Criminal Justice Center in Philadelphia Tuesday. His client was convicted of killing three babies in his clinic, and will serve multiple life sentences.
    Credit: AP/Matt Rourke

  • A photo taken Monday captures Vice President Joe Biden's response to a Milwaukee second-grader's innovative proposal to end America's epidemic of gun violence. This guy!
    Credit: AP/Jenny Aicher

  • Sen. Rand Paul, R-Ky., flanked by a grouper-eyed Michele Bachmann, addresses the IRS' admission that it targeted Tea Party groups in advance of the 2012 election. In an op-ed for CNN Thursday, the Kentucky senator slammed the president for his faux outrage.
    Credit: AP/Molly Riley

  • Ousted IRS chief Steven Miller is sworn in on Capitol Hill Friday. Miller testified before the House Ways and Means Committee on the extra scrutiny the agency gave conservative groups applying for tax-exempt status.
    Credit: AP/J. Scott Applewhite

  • Attorney General Eric Holder pauses as he testifies on Capitol Hill before the House Judiciary Committee Wednesday. Holder is under fire, among other things, for the Justice Department's gathering of phone records at the Associated Press.
    Credit: AP/Carolyn Kaster

  • O.J. Simpson sits during an evidentiary hearing at Clark County District Court in Las Vegas, Nev., Thursday. Simpson, who is currently serving a nine-to-33-year sentence in state prison for armed robbery and kidnapping, is using a writ of habeas corpus to seek a new trial.
    Credit: AP/Las Vegas Review-Journal/Jeff Scheid

  • Major Tom to ground control: On Sunday astronaut Chris Hadfield recorded the first music video from space, a cover of David Bowie's "Space Oddity."
    Credit: AP/NASA/Chris Hadfield

  • When it rains it pours. President Barack Obama speaks during a news conference Thursday with Turkish Prime Minister Recep Tayyip Erdogan, inexplicably inspiring an #umbrellagate Twitter meme.
    Credit: AP/Jacquelyn Martin

  • A smoke plume rises high above a road block at the intersection of County A and Ross Road east of Solon Springs, Wis., Tuesday. No injuries were reported, but the the wildfire caused evacuations across northwestern Wisconsin.
    Credit: AP/The Duluth News-Tribune/Clint Austin

  • Recent Slide Shows

  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11

Related Videos

Comments

 23 Comments

Comment Preview

Your name will appear as username

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>

follow salon

Most Read

Popular on Reddit

links from salon.com

From Around the Web

Presented by Scribol
listener_new_rect The Listener: So long, Sookie Stackhouse

Recommendations