Modern News

It is always astonishing to hear how the powers in Washington are bemused by the failure of Porkulus to stimulate the economy. Guys, the consumer has been the traditional powerhouse of America’s growth, not the government. So to understand the malaise that besets us, look at the state of the consumer.

Consumers depend on credit to propel their economic activity. As the chart above indicates, the nation’s consumer credit is in freefall. (Fourth quarter estimates, not shown, look even worse.) It is a double whammy as 1) overleveraged consumers have been cutting back on their spending as the recession deepens, and 2) overextended banks have been curtailing consumers’ access to credit, depressing economic activity further.

The latter is a particularly aggravating factor. Banks are under tremendous pressure by the government (which ennabled their mortgage excesses in the first place) to improve their capitalization ratios. But as they retrench, the process eats into the lush profits they enjoy from consumer lending, which border on the usurious. And as profits decline, capitalization is hurt, and the cycle repeats.

One way banks can make up the difference is to jack up fees on the intact portion of the consumer economy. And they have been doing so with a vengeance. Credit card processors are charging retailers a discount of 2% on processed sales, the aptly named “swipe fee”. As credit card transactions have largely replaced cash in the consumer economy, the fees represent an enormous overhead cost that businesses must pass on to their customers.

The costs fall particularly hard on small businesses. And they have had enough. Consumers for Competitive Choice, Inc. (C4CC) is organizing to protect their interests, and to educate the public on the swipe fee phenomenon on their website thecreditcardcon.com.

This Thursday, I will be interviewing Bob Johnson, the president of C4CC, on the Italian Tomatoes show on BlogTalkRadio. Tune in Thursday, Feb 4 at 10PM Eastern by following this link or call in at 646-478-0004

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