More American consumers see credit as the way to go
By John Cunniff
Associated Press
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NEW YORK — The trick in getting the economy to cool down is to convince consumers to save rather than spend, even as they are offered fistfuls of cash without so much as asking.
It isn't the only financial enticement offered. Add in below-cost loans and rebates from automotive companies, no-cash down terms, no interest payments for a year, bonuses to repeat customers, two-for-one sales.
Consumer credit in September soared by $13.4 billion, a 10.9 percent annual rate that startled those who analyze such numbers, many of whom had expected the total to be almost $3 billion less.
As expected, most of the total was on credit cards, which continue to be promoted as the smart way to go, and in fact have become necessities in transactions conducted over the Internet.
Most people regularly receive credit card solicitations. A marketing research firm estimates that consumers were inundated with 992 million solicitations in the April-June period, the greatest volume in more than a decade.
While the same company, BAIGlobal Inc. reported that the response rate was just one in 250, it doesn't necessarily indicate that interest in cards is waning. Most people already have at least one actively used card.
And buying a car has never been easier. Thanks to the marketing genius of makers and financial innovation, including low or even no down-payment leases, the roads have never been more clogged with the latest models.
The ability of manufacturers to produce more than 17 million cars and light trucks a year could never have been accomplished without the heavy and sometimes total use of credit, and easy credit at that.
Neither could new and used homes be sold in such volume. New-home sales in August were at a rate of 893,000 a year, and sales of existing homes soared to an annual rate of 5.27 million.
No wonder; credit plays a dual role as cause and effect. Families buy homes on easy credit terms, and as they pay down the mortgage and housing prices rise, they have a new, easily-tapped source of credit in the equity.
Borrowing on home equity indicated a tragedy during the Great Depression.
Today, it's the way to go.
October 25, 2000
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