“Your big opportunity may be right where you are now.” -Napoleon Hill
How Consumers Could End Up Taking a $75M Bath In ‘08
This is pretty darn interesting, in my own humble opinion. According to an AP article that I came across today on Yahoo:
I was recently quite fascinated by reading that US consumers shelled out more than $26.3 BILLION on gift cards during this past holiday season (NRF). We are not talking annual here, just the holiday’s
With consumers about as far down on the pecking order to be compensated for what is owed to them as the guy that cleans the toilets if a retailer does in fact go bankrupt and ceases to operate entirely, the press has begun noting an increase in people making trips to the mall in order to cash in gift cards “just in case”.
I’ll be watching very closely here over the coming months to see if scared selling on behalf of gift card holders has an impact on final retail sales figures. Although a few million bucks is surely a drop in the bucket here, if this gives birth to a wider negative stigma surround gifts cards and they begin to lose popularity even half as fast as the handy little cards gained it, things could get interesting.
With The Commerce Department stating that retail sales rose by 0.3 per cent in January - which shocked analysts from LA to Tokyo - if this starts a chain reaction and gets consumers ditching the gift card idea by the droves, this could actually have a short-term positive effect going forward, but not so great long-term.
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The question is not whether or not the U.S. Federal Reserve Bank will cut its benchmark lending rate today, but if in fact the cut will have any impact on our wounded economy.
Whether the cut is .25 or .75 points – either of which would bring the rate to an all-time low, economists fear that the benefits simply won’t trickle down the consumer. Recent rate cuts have done nothing to boost the consumer credit market because given current economic conditions, the banks that aren’t going under find that issuing consumer loans at anything else than a premium is far too risky.
A great example of this is the current market for auto loans. Typically influenced by the prime rate, which was roughly 4%, Monday, the interest for a 48-month new car loan is 6.8%.
With Americans now hoarding their money and growing increasingly content with simply not losing their hard-earned greenbacks, the Fed may need to expend some of its “extra ammunition” in addition to its imminent rate cut to get consumers to start spending again.
So, what happens when the rate hits zero and its back to the drawing board for Big Ben and his crew? Here’s a great report written by Ben Bernanke himself on potential strategies for monetary policy when the key rate hits zero.
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