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Why Credit Cards Matter So Much
Sharon Astyk, Casaubon's Book
Yesterday put the nail in the coffin of a move from recession (small “r”) to Depression (capital “D). Two pieces of news that were absolutely essential came out - and no, neither one was that we’ve been in a recession since last year, or that last week’s stock market rally was yet another sucker rally. The first was the observation that McDonalds is now the second-largest merchant vendor on credit cards - that is, people are now buying their Big Macs on plastic - in part because they don’t have the cash.

Credit card balances have risen enormously in the last few weeks, as people attempt to keep going through the holidays:

... The second is the news that credit card companies are planning to pull 2 trillion dollars of personal and small business credit lines over the coming months, to reduce their risk:

... Almost all of the consumer spending we’ve done in the last few days has been done on credit. In November and December, retailers see more than 40% of their annual sales - and since the average American comes out of the holiday season with more than $800 in credit card debt, it is safe to say that retailers in general are dependent on an annual payback that is then amortized over mos tof the year in the form of personal credit. That is, the consumer spending economy, 70% of our total economic activity, is utterly dependent on consumer credit. And whether that’s a good thing or not, the destruction of consumer credit lines will bring about a shift in consumer spending that makes the present economic woes looks petty.

But there’s more to it than that ...
(2 December 2008)

Deflation: Bargains abound, which could be a problem
John Waggoner, Sue Kirchhoff and Barbara Hagenbaugh; USA TODAY
Everything is on sale. And that's not a good thing.

Consumer prices in October fell at the fastest pace in more than 60 years, sucked down by the rapidly deteriorating economy. The prices of oil, food, cars, clothing and electronics have all plunged. Home prices continue to swoon and so do stock prices.

As the early reports from the holiday shopping season suggest, the nationwide fire sale might seem like a boon for consumers. But it's increasing the risk that the economy could become mired in a dangerous deflationary spiral — a widespread, sustained reduction in prices. That's something that hasn't happened here since the Great Depression.

Economists say it's too early to tell whether deflation has set in — and many say the government's aggressive responses to the credit crunch likely will prevent sustained deflation.

Others aren't so sure. Nouriel Roubini of New York University predicts that what he calls "stag-deflation" — a recession combined with deflationary forces — will be a big concern in the coming months, here and abroad.
(3 December 2008)

In this recession, we want comfort culture to go with our comfort food
Jonathan Freedland, Guardian
Man cannot live by bread alone - he also needs some shepherd's pie and a dollop of rice pudding. That, at least, is the word from Tesco, reporting an extraordinary surge in sales of comfort food. As we feel the first chill of the recession, and as American economists declare that the downturn in the United States began a full year ago, making the current slump already longer than the average recession since the second world war, the supermarket chain has noticed a run on its cosiest products.

Sales of lamb hotpot are up 615% on this time last year, while beef casserole and dumplings have leapt by 279%. Deep-filled pies are selling at more than double the usual rate, as is cheesecake. Hot cakes are selling like hot cakes.

... What will happen to our other appetites, those located not in our mouths but between our ears? What is the brainfood we'll be seeking out as times get tougher? Put simply, what's likely to be the culture of this recession?

Not so different from the food, as it happens. While Waitrose reports an 80% increase in sales of loaf cakes, ITV is cheering a rise in the television equivalent: viewing figures for I'm A Celebrity are up on last year. The X Factor and Strictly Come Dancing are doing a roaring trade too. And what has just become Britain's fastest-ever selling DVD? Mamma Mia!.

Think of it as comfort culture to accompany the comfort food. We want to be eased through the freeze.

... But it's not all mindless. Brucie and Cheryl Cole are far from the only cultural providers experiencing a boom during the bust. In a declining newspaper market, the Financial Times and the Guardian both saw their sales rise as the financial crisis hit. ... It seems we either want to escape the current turmoil or understand it.

... But what if things get really severe? Reading could make a comeback, predicts John Carey, former Merton Professor of English at Oxford. In the 1930s, he says, some of the poorest turned to books for diversion. "Reading is astoundingly cheap," he says. "Libraries must be the cheapest form of entertainment possible." Classics were especially popular: they were inexpensive and available. "Social histories of the time are full of references to Dickens," says Carey.
(3 December 2008)