The History of Credit Cards and Consumer Debt

The History of Credit Cards and Consumer Debt

Where did this modern epidemic of what I call the “Plastic Plague” come from? Most of us have been taught that buying things on credit is not only normal, but also the smartest way to purchase. We think we have to pay for everything with a credit card so we can rack up as many rewards points as possible and improve our credit score. We have been taught to maintain a mortgage even if we have enough money to pay it off so we can deduct the interest off of our taxes. Lending institutions have done a great job convincing us that what is in their best interest is also in our best interest. What is the origin of our current society’s attitudes towards debt? What did we do before car loans existed? Did you know that Henry Ford believed as a matter of principle that no one should ever buy a car on credit? He invented major breakthroughs in production efficiency to drive costs down so his automobiles would be more affordable to the middle class, but he still expected everyone to pay cash. No other manufacturer could quite compete with the very inexpensive Model T Ford until 1919 when General Motors formed its own lending institution, General Motors Acceptance Corporation (GMAC). This innovation allowed average people to buy GM’s higher-priced, more luxurious automobiles with lower payments over time. By 1926 three-fourths of all car sales in America were financed.[i] Sticking to his principles, Henry Ford fought this movement as long as possible, and thus suffered a dramatic decline in sales. In 1927 Ford Motor Company was finally...
The Election’s Impact on the Market

The Election’s Impact on the Market

For better or for worse, the suspense is finally over and our next president has been elected. Whether you are shouting for joy or crying your eyes out, what does this all mean for the stock market? Many people are shocked that Donald Trump won. Based on concerns we’ve heard about how this election would affect the market, many people are probably just as shocked that the Dow Jones Industrial Average jumped up 1.4 percent (256 points) the day after the election, and the S&P 500 rose 1.1%. A lot of people were expecting a big drop in the market because that’s exactly what happened after the past two elections. Could it be that after the past two elections the market was reacting negatively to news that our next president would be a Democrat, and that now the market is reacting positively to the election of a Republican? Don’t count on it. The market fell the day after George W. Bush was elected in 2000, and it rose the day after the re-election of Bill Clinton in 1996. Historically, there has been no predictable impact on the market based on whether a Republican or Democrat takes office in the White House. Furthermore, the day after the election gives no indication as to how the market will perform over the next 12 months. In fact, although the S&P 500 dropped 5 percent the day after Barack Obama won the presidency in 2008, over the course of the following 12 months the S&P 500 gained 26%. In 2012, the swing was even more dramatic, losing 3% the day after the election,...
Brexit

Brexit

I’m sure you’ve heard by now that last Thursday the citizens of the United Kingdom voted to leave the European Union (52% voted to leave, 48% voted to stay). The European Union (EU) is a political and economic partnership of 28 countries, mainly in Europe. The EU was formed after World War II to facilitate peace and free trade throughout the region, but many of the countries involved were accepted into the EU much later – even as late as 2013 in the case of Croatia. The popular nickname “Brexit” was derived from a combination of “Britain” and “Exit.” The UK’s withdrawal from the EU will not happen overnight, but could take up to two years to negotiate. No one knows what the economic impact on Britain, Europe, or the rest of the world will be. Some predict this is a recipe for global recession, and others claim it’s the best global economic news we’ve heard in a while. In the meantime, it’s hard to ignore headlines about the impact on the markets, such as the following: CNBC: Dow closes down 600 after Brexit surprise; financials post worst day since 2011 USA Today: US stocks hammered as Brexit shock rocks markets New York Times: Turbulence and uncertainty for the market after Brexit It’s true, that Friday and so far today have been bad days for the stock market, both in the USA and abroad. The Dow Jones and S&P 500 indexes were down over 3%on Friday. So what does this mean for investors? Some reporters, politicians, and economists would have us believe it’s time to run for the hills...