Consumer Spending Power Likely to Shrink Further, Financial Services Professional Dennis Tubbergen Says
Consumer spending power may shrink even further in coming years, according to financial professional Dennis Tubbergen, who recently commented on the issue on his financial services blog, at www.dennistubbergen.com.
Attempting to revive their economies and spur consumer spending, world leaders are trying to inject money into national economies, Tubbergen writes.
Where will this money come from, given many world currencies are suffering? Some governments may decide to monetize their money supply, Tubbergen writes – in other words, print money to throw at these problems.
This is already happening in the U.S. – and it could be a recipe for inflation, Tubbergen writes. Inflation is defined as too much money chasing a limited supply of goods and services, according to Tubbergen. Printing money in an attempt to encourage consumer spending is a short-sighted measure, Tubbergen writes. In Tubbergen’s view, consumers aren’t spending money. On the contrary, the U.S. is in a deflationary environment. This trend will likely continue, Tubbergen writes.
As the government tries to draw water from the dried-up spring of consumer spending, some credit-card companies are turning off the taps.
This dynamic was highlighted in a May 22 article from The Philadelphia Inquirer.
Credit-card issuer Advanta announced that as of May 30, its customers would no longer be able to use their credit cards, the article reported. The company, specializing in credit cards for small businesses, announced it was closing or freezing nearly one million credit-card accounts in order to cut company losses and preserve capital.
This is not an isolated incident. Many credit card companies are rethinking their policies to reduce their risk of exposure.
The Dallas Morning News reported on May 23 about a strategy known as “balance chasing,” which occurs when a credit-card company reduces a credit limit to a level just above the cardholder’s current outstanding balance.
Consider a cardholder with a balance of $10,000 on his credit card who decides to make a payment of $1,500 to reduce the balance to $8,500. A credit-card company might adjust the credit limit to $8,600, just $100 more than the new outstanding balance. Next, the cardholder makes another $1,500 payment to get some breathing room on his card, reducing the outstanding balance to $7,000, and when he does, the credit-card company reduces the credit limit to $7,100, again just $100 more than the outstanding balance.
Balance chasing can hurt consumer credit scores because it looks like the cardholder is using a larger portion of his or her available credit.
In light of these facts, Tubbergen expects the deflationary environment to continue for a period and then eventually give way to inflationary pressure as the Fed struggles to remove excess money from the economy in enough time.
The tightening money supply may result in an economic slowdown, Tubbergen forecasts, causing the recession to linger, in his opinion, until as late as 2012.
For a full copy of Tubbergen’s recent Market Outlook, click on www.usawealthmanagement.com.
Advisory services offered through USA Wealth Management, LLC, a federally registered investment advisor.
The opinions expressed herein are those of the writer and not necessarily that of the above noted company.
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