[Nesster]

Part of the constant election cycle thing is that the Fox talking heads - and Oberman et al - get eyeballs to sell to advertisers by being in a constant 'election cycle' mode.

I don't give a damn about that, it is what it is, and a side issue to something more fundamental.

Namely, conservative economists are arguing that the stimulus in fact subtracted jobs and worsened the recession. Something to do with inhibiting private formation of captial and its use as investment to expand the economy. See, the Govt prints bonds that private capital rather buy than create jobs: govt is crowding out job creation. This is why we're about to go on a global austerity kick. Shades of the depression, where the intial recovery was undone by too rapid government cutbacks too soon.

But the real scary thing this time around is that the recession and the crisis that started it are different in kind from other recent ones. The excesses of decades - since the 80s after inflation was beat - in the debt markets all come home to roost. We do understand that companies of all sizes require and use credit to operate. The cost of materials now vs. the proceeds from sales eventually is bridged by finance. All sorts of books are financed overnight in the commercial paper and repo markets.

All of a sudden, trillions of dollars worth of paper becomes untradeable, unvaluable, and toxic. Companies stop trusting each other to pay back: the credit markets freeze up. Old debt comes due, new operations must be financed... but even after TARP, even after the financial markets have started to function again, the financials are still holed up. Companies rather pay down debt and hoard cash than invest in new capacity - and there's nobody to buy the produce of the new capacity. So there's no hiring.

In this environment, stimulus has an effect but not as large as it would if it stimulated corporate investment. This time around, seems a lot of stimulus went to keeping what capacity remains, what jobs remain, still going. Yes, corporations buy government paper (aka hoard cash) but what's the alternative? Government austerity will mean less government paper, so what's out there becomes more expensive (yields fall, perhaps to less than 0 as they have in Japan, at times)... Will this encourage corporations to finally start expanding again? Who knows.

If you and I are still feeling the effects of the crash and recession, our assets discounted ('to realistic levels' yes, but still it hurts to have something worth 70% or less what it was worth 2 years ago), our savings ravaged (how's your 401(s)?), and banks unwilling to lend to you, and your income down.... yes I'm sure you and I are eager to start investing and spending again... NOT.

[Parallax]

Namely, conservative economists are arguing that the stimulus in fact subtracted jobs and worsened the recession. Something to do with inhibiting private formation of captial and its use as investment to expand the economy. ................

No, no, no, Nester. It doesn't work like that. Everybody knows that all those evil rich people just stuff their money under the mattress. They never do things like run businesses and pay wages to other people. They don't buy things that have to be manufactured or retailed. They would never think to do something so foolish as to invest any of their money in other companies, thereby allowing them to pay wages. They're too busy doing their own gardening, window washing, etc. If a wealthy person makes a dollar, that's last it will ever be seen again.

[jeffkrol]

No, no, no, Nester. It doesn't work like that. Everybody knows that all those evil rich people just stuff their money under the mattress. They never do things like run businesses and pay wages to other people. They don't buy things that have to be manufactured or retailed. They would never think to do something so foolish as to invest any of their money in other companies, thereby allowing them to pay wages. They're too busy doing their own gardening, window washing, etc. If a wealthy person makes a dollar, that's last it will ever be seen again.

Now your getting it......

That's because cash payers (which includes those paying by check, debit card or prepaid card) are largely lower-income consumers, and they end up footing the bulk of "merchant fees" charged by banks to process card use, the study says. Higher-income consumers reap hundreds of dollars of gains each year because they use cards more often and cash in more rewards.
That means each day at a cash register, we engage in a significant transfer of wealth from the poor to the wealthy. The poor give up greenbacks. The wealthier among us get free airline tickets and magazine subscriptions.On average, each cash buyer pays $151 to card users and each card buyer receives $1,482 from cash users every year, a total transfer of $1,633 from the average cash payer to the average card payer.
The magnitude of this transfer is even greater when household income is divided into seven categories: on average, the lowest-income household (less than $20,000 annually) pays a transfer of $23 and the highest-income household ($150,000 or more) receives a subsidy of $756 every year

Credit cards give to the rich, take from the poor- Smart Spending - MSN Money

[gokenin]

Now your getting it......

Credit cards give to the rich, take from the poor- Smart Spending - MSN Money

here is a radical idea don't use a credit card.

[jeffkrol]

here is a radical idea don't use a credit card.

You didn't read it right.......... "poor" pay cash...... ANYONE paying cash is penalized.

That's because cash payers (which includes those paying by check, debit card or prepaid card) are largely lower-income consumers, and they end up footing the bulk of "merchant fees" charged by banks to process card use, the study says.

Try again........

[johnmflores]

No, no, no, Nester. It doesn't work like that. Everybody knows that all those evil rich people just stuff their money under the mattress. They never do things like run businesses and pay wages to other people. They don't buy things that have to be manufactured or retailed. They would never think to do something so foolish as to invest any of their money in other companies, thereby allowing them to pay wages. They're too busy doing their own gardening, window washing, etc. If a wealthy person makes a dollar, that's last it will ever be seen again.

I've got nothing against people that work hard and find success and financial rewards. Heck, I'm trying to become one myself. But in 2010 are we still using Trickle-Down economic theory as an argument for reduced government regulation in business?

Businesses (and the wealthy that run them) at the end of the day have no real patriotism. Yeah, they'll wave the flag and spend millions on telling your how patriotic and American they are. But in the game to get their big bonuses they will outsource every single function they can to cheaper labor overseas:

Manufacturing? Done.
IT? Done.
Support/Call Center? Done.
Legal/Financial? On its way.

So what if they hire a handful of undocumented day laborers to mow their lawn and wash their windows? So what if they buy a nice house or boat? It doesn't come close to making up for all the skilled jobs they've shipped overseas and all the hard-working, skilled Americans they've "downsized". Sure, unemployment hovers around 10% and underemployment hovers around 20%. The number I'm most interested in is, "I used to have a skilled or semi-skilled job and now I stock shelves at Walmart or microwave burgers at McDonald's".

The big question is, if we let big business regulate themselves, what assurances do we have that they'll actually create work in this country vs. shipping it overseas to the lowest bidder?

[Nesster]

...and at any rate, the point isn't about individuals - the rich spend as they spend, and people involved in the luxury goods sectors suck some of it in, as do landscapers, cosmetic procedure folks, brokers of expensive things, and so on. And yes, they do invest large portfolios... and if they own/run a business, yes, they employ people.

As long as there are tax loopholes they employ accountants to take advantage, regardless of marginal tax rates. It's just that certain cost-benefit calculations flip differently with a different tax rate.

I'm saying is that the current economic situation doesn't have so much to do with marginal tax rates to the rich. It has more to do with how slowly businesses are willing to risk their capital in expansion and hiring. Business has just experienced a frightening period: credit dried up, demand fell off a cliff, excess capacity is eating into cash flow, equity markets took a frightening dip... And this time around, you can say the same thing about the wealthy professional and small business crew: especially the professionals have slid by the past several recessions with relatively minor and short term damage. These companies and individuals are still in tighening mode, even if they have cash around: the sense is we're still not out of this recession, nor how long the tightening will last. I know I'm much more pessimistic after the hit I took in my 401(k) and other such, much more worried about retirement and getting through the next couple of years (this being the 3rd year, and so far the worst)...

Stimulus doesn't reach these - except businesses that get stimulus contracts. Stimulus helped the lower income folks, the state and local govt employees and such: who then were able to spend their income on necessities... helping those that provide necessities. The end of stimulus results in large public sector layoffs, again squeezing the economy, making the above wealthy people and corporations skittish.

On the other hand, if the root cause of today's problems is a debt overhang, the absolute reduction of debt in the system may be helpful. If government austerity reduces total debt, it may be a positive after some lag: theoretically cash will now seek private outlet in corporate lending and equity. And long term, perhaps austerity will increase overall confidence.

If we can actually count on governments doing the right things. And if the contraction in effective money supply doesn't cause liquidity issues... and the contraction in available money, combined with job losses doesn't first cause a deflation to spread from real estate into other areas of the economy.

[GeneV]

I would say that the issues John mentions have a lot more to do with the economic conditions than many want to admit. You can't maintain forever an economy whose core is consumer spending of money created by smoke and mirrors. If fewer people are fully employed, eventually that has to have an effect on the economy, and though stimulus may ameliorate it; stimulus without some structural change is just delaying the inevitable.

---------- Post added 07-30-10 at 07:57 AM ----------

You didn't read it right.......... "poor" pay cash...... ANYONE paying cash is penalized.

Try again........

Cash purchasers certainly would end up paying for some services they are not using. Somewhere, we need to get away from the requirement that merchants not charge the cost of credit cards through to the consumer. My state passes the charges through to you if you pay your taxes by credit card, and it is an eye-opener how much these fees cost.

[jeffkrol]

I would say that the issues John mentions have a lot more to do with the economic conditions than many want to admit. You can't maintain forever an economy whose core is consumer spending of money created by smoke and mirrors. If fewer people are fully employed, eventually that has to have an effect on the economy, and though stimulus may ameliorate it; stimulus without some structural change is just delaying the inevitable.

---------- Post added 07-30-10 at 07:57 AM ----------



Cash purchasers certainly would end up paying for some services they are not using. Somewhere, we need to get away from the requirement that merchants not charge the cost of credit cards through to the consumer. My state passes the charges through to you if you pay your taxes by credit card, and it is an eye-opener how much these fees cost.

If you want a real eye opener just see the complex mess of variable and changing rates based on types./levels of cards.... Multiple systems take there cut w/ multiple rules. and as usual, the more $ you take in credit the cheaper the card "merchant services" are.
I gather your state just uses a worst case charge (rates should be around 11/2% in that guestimated volume/value range). Or the state is being gouged by their "merchant service".
At one time we had one "merchant service" that we sent to have analyzed to see the ACTUAL average cost per card transaction and they gave up. It was uncalculable......

[JeffJS]

I would say that the issues John mentions have a lot more to do with the economic conditions than many want to admit. You can't maintain forever an economy whose core is consumer spending of money created by smoke and mirrors. If fewer people are fully employed, eventually that has to have an effect on the economy, and though stimulus may ameliorate it; stimulus without some structural change is just delaying the inevitable.

---------- Post added 07-30-10 at 07:57 AM ----------



Cash purchasers certainly would end up paying for some services they are not using. Somewhere, we need to get away from the requirement that merchants not charge the cost of credit cards through to the consumer. My state passes the charges through to you if you pay your taxes by credit card, and it is an eye-opener how much these fees cost.

Are those fees being passed by the State or are they being Charged by a 3rd party company for the privilege of Using the credit card?

[jeffkrol]

Are those fees being passed by the State or are they being Charged by a 3rd party company for the privilege of Using the credit card?

My guess is it's a bit of both........ but could be wrong. What I do know is they (3rd party) charges a percent. And there are usually at least 2 levels.. Card themselves ie MC/Visa and "clearing house" (which may have a flat fee and percent). As I said it's messy... like a house sale where everyone wants a piece......
Our state gets you in 2 ways, walk in and pay "cash" (check whatever) and you get a "counter fee"... pay by card and you get a "credit card fee".
I suspect the state gets a 1%ish fee. The rest goes to all the 3rd party people.

n the case of Visa and MasterCard (nyse: MA - news - people ), when a credit card is swiped, the transaction gets relayed--via an intermediary--to the credit card company, which then sluices the funds to the merchant's bank account. That middleman charges the merchant a fee--2% to 5% of the sale--for the hookup; meanwhile, the processor pays a fee to the credit card company. (American Express (nyse: AXP - news - people ) puts the money right into merchants' accounts, charging them fees directly.).........Remember, too, that the processor must pay a fee to Visa and MasterCard, which typically charge 1.65% for a normal credit card transaction,

http://www.forbes.com/2007/02/20/visa-americanexpress-globalpayment-ent-fin-...reditcard.html
5% is pretty high and usually reserved for "low volume" accounts..
If a state charges 5% "surcharge" for credit processing I'd suspect a "kickback" or gouging.2-3% is pretty normal..

[JeffJS]

My guess is it's a bit of both........ but could be wrong. What I do know is they (3rd party) charges a percent. And there are usually at least 2 levels.. Card themselves ie MC/Visa and "clearing house" (which may have a flat fee and percent). As I said it's messy... like a house sale where everyone wants a piece......
Our state gets you in 2 ways, walk in and pay "cash" (check whatever) and you get a "counter fee"... pay by card and you get a "credit card fee".
I suspect the state gets a 1%ish fee. The rest goes to all the 3rd party people.

Saving On Credit Card Processing Fees - Forbes.com
5% is pretty high and usually reserved for "low volume" accounts..
If a state charges 5% "surcharge" for credit processing I'd suspect a "kickback" or gouging.2-3% is pretty normal..

I just kind of wondered because I can pay my state income tax (probably fed too) with a CC but it costs something like 4% to do so (that's no small chunk in my case). I can pay my municipal bills (water, property taxes, etc) with one as well, but the same type of fee applies and I have to do it online (can't pay with CC at the counter). If I walk up to the counter or mail a check to the IRS or State, the amount is as stated. In the case of the municipal bills, they've already added their "Processing fee" into the bill so IT gets paid regardless of method.



PS.. I don't doubt for one second that the gummit pri**s have their smelly fingers in there somewhere. As far as I'm concerned, cash is still king.

2nd

[stevewig]

Seems as though Obamarama is stuck in that causality loop.

Why do the majority of your posts use this epithet?

Is it your intention to diminish the man by name calling - rather than by using your intellect?

[GeneV]

I just kind of wondered because I can pay my state income tax (probably fed too) with a CC but it costs something like 4% to do so

I did not do the exact math, but 3-4% seems about what it is. I was paying my state gross receipts tax from the business. There is no fee if you let them take it directly from your account with an E-check.

I have read that the merchant fees actually vary with the kind of credit card you use. Cards which have some kind of bonus attached to them may result in a higher charge for use. I've never confirmed this.

In any case, to the original point, anyone who is NOT using a credit card to pay for groceries, etc. is subsidizing those who do. This is a substantial expense for a merchant, especially at a grocery store where margins are slim. I use a card and get miles, points or cash (dependng upon the card), and someone has to be paying for that even though it does not show up on my receipt.

It seems that merchants should be allowed the option of passing these fees through with disclosure, the way they do with sales tax.

[gokenin]

Just curious why is everyone saying that the merchant should charge a lower price for cash buyers? How about everyone needs to change how they look at their buying decisions instead. Credit cards have become so insidious in our lives that we forget that we are using someone elses money instead of ours and that this comes at a cost. Credit card companies have convinced us that we need these reward cards because we get miles or cash back or whatever but the only way to get it is be SPENDING more of their credit and going deeper into debt.
There was a time that credit cards didn't exist and our ancestors (parents or grandparents by the way) seemed to live. They saved and bought things when they had the money instead now we want instant purchasing power so we use credit. Unless there is a fundental change on how people thing about credit cards there will always be this transfer of wealth from the poor to the rich.