The consumerist credit machine is coming to a grinding halt. It is hard to wean yourself off an addiction that has persisted for decades, unchallenged and enabled by companies and financial engineering. The idea of buying things with money you currently don’t have isn’t a new concept. In Edward Bellamy’s novel Looking Backward the concept for a credit card was mentioned and this novel was written in 1887. Western Union issued charge cards to frequent customers as far back as 1914. The major push however came in 1966 when a group of credit issuing banks congregated together and established the now famous charge card which eventually came to be known as the Master Charge in 1969.

In the past, there was also a novel way of buying something you wanted but didn’t have the cash to buy it. It was called layaway. The concept is simple. You see an item at a store you like. You pick it out, take it to the cashier and ask them to set it aside for you. You then make monthly payments until the item is paid off and then it is all yours. Yeah, I know this method must be shocking to many since delayed gratification is a foreign concept. Given that people are looking for methods to buy things this is now making a furious comeback given the current climate:

“(Boston Globe) After pulling back on layaway programs for years, retailers are touting the service as a financially savvy way to buy goods this holiday season. Already, many cash-poor and credit-strapped shoppers are responding by flocking to layaway counters at stores such as Kmart, Marshalls, and Burlington Coat Factory, and using online options such as eLayaway.com.

“The response has just been tremendous,” said Tom Aiello, a spokesman at Kmart, which is running a national holiday ad campaign for its layaway service. “We know for a fact it’s a big increase over . . . last year.”

What a shocker. And this isn’t a prudent way either. What is happening is credit card companies are getting body slammed into the ground with rising defaults and restricting credit on many customers. The non-prime customers can now forget getting $20,000 credit lines simply for being able to walk and chew gun at the same time. Even prime borrowers are seeing their limits lowered. But make no mistake, this upsurge in layaway is simply a manifestation of the consumerist hamster mentality:

“People are looking to buy the things they want with noncredit based terms,” said Michael Bilello, senior vice president of business development at eLayaway.com. “The lend-and-spend boom is over.”

You being the bright and intelligent observer that you are may be asking:

“Why not just save the money in an interest savings account and then buy the item later?”

“Good question. The consumerist hamster loves spending and is anti-saving. A savings account is like kryptonite for Superman. So, savvy marketers need to figure out a way to make it seem like you are spending and not actually saving.”

“I see. So isn’t this better than using a credit card with high interest?”

“Yes it is. But it is also better to jump from a 6 story building as opposed to a 25 story building. Either way, you really need to ask yourself if you should jump.”

The argument I would throw out is that consumer debt is already much too high and this is a methadone approach to going off the debt treadmill. Take a look at the most recent Federal Reserve flow of funds report and look at the amount of consumer debt outstanding:

There is currently over $2.5 trillion in consumer debt outstanding! And yes, right next to it you can see that there is $10.5 trillion in mortgage debt but that is an entirely different story. Now that our government has issued the epic and largest financial bailout in history, citizens are actually having to save money to purchase things. What is this you speak of Dr. Housing Bubble about saving money to buy something? This simply makes no sense. Well, this again goes back to the silent depression that I’ve discussed various times and I suggest people read the article to get an idea regarding the psychology that is currently evolving in the current economic climate.

Now I know that layaway is better than charging up a credit card. Yesterday on NPR I heard some girl talking about putting some $400 stilletos on layaway. Yes, $400 shoes on layaway. Welcome to the weird and wacky world of folks addicted to spending. And maybe that is the bigger issue. Debt is simply the tool that is used to outwardly express our nation’s addiction to spending. The consumption hungry beast that rests in the belly of many Americans. That beast is getting a furious smack down however.

The latest U.S. GDP report showed that GDP fell by 0.3% in third quarter:

You may be asking yourself, “what happened in late 2007 to turn this thing around?” We were already heading into a recession at this time but we strapped on our consumption nation thinking caps on and issued a stimulus to the nation to get things going again. Those stimulus Wal-Mart rebate checks helped plug the dam for 2 quarter but the third quarter was too much. Just wait until we look at the forth quarter which is going to see the economic beat down we just took. Keep in mind the official definition of a recession is two consecutive quarters of declining GDP. One is in the bag. We are well on our way to achieving that. It is interesting to note that Wall Street’s press secretary the Wall Street Journal had a survey in January that had economists stating that we only had a 42% chance of a recession. In another separate survey, 42% of all economists have undergone a lobotomy in the past 10 years. They have found there way a bit and issued a WSJ Economic Forecast survey in October saying the probability of a recession is now at 89.3%. This is like saying there is a 89.3% probability that the sun will rise tomorrow.

Consumers are tapped out. Seeing that consumption is 70% of our GDP and consumption is contracting, logically you would realize that GDP would subsequently follow suit. Some people simply lack this foresight. The Conference Board issued their consumer confidence report and it fell to 31, the lowest reading we have seen in the 41-year history of the index.

My suggestion for anyone considering putting something on layaway is this. Open up a savings account. You can even get an online one that pays a decent rate and set it to automatically deduct a certain portion from your paycheck each month. When you reach your desired amount, if you still hope to buy the item withdraw the money and do it. Why lock yourself in to that single item? You are giving the store a free loan. Why not earn some interest and forget the layaway? My guess is that many people will actually enjoy having a nice sum of money saved up and the impulse to buy that said item may have already passed.

Hamsters of the world unite!

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