Wednesday, December 4, 2013

Spending and Rolling the Dice

Clearly it would be misleading to assign one sole cause (like the crash of '29) to the Great Depression.  And while all the causes are valid, some are more interesting to examine than others because of the way they continue to shape our spending patterns

Relying on credit for purchases was a virtually new practice in the 1920s.  Stretching out payment plans made the average American able to afford luxury items for the first time.  However, buying an item on credit is not a payment as we all know--it is merely a promise to pay.  Effectively then, every purchase on credit that we make carries a risk.  What happens if we buy that expensive car, take out a student loan, etc., and then lose our job?  Defaulting on a loan is equally bad for business as it is for the consumer.

SO....why did retailers do it?  Why was the phenomenon of credit purchases so popular in the 1920s?   Why do you think it is so prominent today, despite the fact that it proved to be a colossal mistake during the Depression?

14 comments:

  1. The reason why I think the phenomenon of credit purchases were so popular in the 1920’s was because people wanted to buy things and with the war having ended and prices going up, people were having to take out loans. However a loan is like a promise that when you take out the money to buy something, you will eventually pay it back, and back then people were taking out more loans then they could afford to pay back which ended up hurting the economy and proved to be a colossal mistake during the Depression because everything such as food and cloths was considered a delicacy and very expensive and people were running out of money.

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  2. The economy was suffering because of the war, but people still needed to purchase goods and necessities, and they wanted to purchase luxuries although they couldn't afford it. Credit payment allowed the people to purchase things that they would not be able to buy otherwise, but technically they hadn't really paid for the product yet. Instead, it was like making a promise that they would pay the product later on. Although it proved to be a colossal mistake during the depression, because people overused their credit payment and were unable to pay the money back, even nowadays, it is still used today. I think it is still prominent because people will always want to buy more than what they actually need, and credit allows them to do that. Some do not foresee the consequences. Today, there are many people in credit debt or with bad credit scores.

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  3. Okay I hate this blog, my post will get deleted 1 out of 3 times when ever I write here and of course i forget to say it. But The economy was in a terrible time from going from war production back to normal production. But that was not the main problem, like Meghan said, credit card were finally invented and people did not really know what they did. Because they think that they could of used this piece of plastic to buy anything they desired. But what they did not really know was these cards got people into great debt and when the banks asked for there money that the people owed they could not pay them back and this is was destroyed the economy.

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  4. I think that retailers did this because it would increase their sales which would eventually help to make the economy better. I also think that retailers did that because it would make their prices for their products seem more reasonable. This would be more appealing to consumers and they would want to buy the product. Credit purchases were so popular in the 1920's because that is when they first came out and everyone wanted to have credit purchases. It was probably like the cool thing to do at the time because it was just invented, so there were more purchases leading to a better economy. I think it's so prominent today because people are lazier now. Also it has been around for a very long time (almost 100 years) so the process is simple and easy to use. People use credit cards for everything from gas to ordering something online. It makes peoples lives easier instead of having to go out to the store and buy it.

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  5. i think people were excited over the fact that they could now take out loans, especially after the end of the war ended. When the war endedpeople knew that that meant taxes would go up and that the people were going to have to pay for the war, because it wouldnt pay for itself. so while they were paying for the war they could still buy whatever they wanted because all they had to do was takeout a loan, and banks letpeople do this because they knew that they knew they would have to get payed back in interest which meant they would make money off of it. so when so many people started taking out loans they were excited.. that was, until no one had the money to pay them back, which then made the banks themselves poor. i think this is popular still today because banks still want to make money offof peoples loans, butbanks are much smarter about who they give loans too and why. ALso, with our current economy so bad people have to take out loans to support themselves and their familys until they can get on their feet again or get a new job. theres many reasons as to whypeople and banks took out loans before the depression, and thers many new and some of the same reasons now. only this time we hope were not going to end up in another depression (knock on wood)

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  6. credit is such a enticing and useful feature to have it allow not only consumers but retailers to be happy. as a retailer you want the future income and interest for your products its highly profitable. plus the irs has your back it the creditor dosen't pay so its usually highly beneficial for the one giving credit. And as a consumer there are endless reasons and bonuses to having credit you a have a stable job and want to move up in the world get a nice car and house. you credit allows you to live beyond your means in absurd comfort. isn't that the american way a sense of entitlement with a do it later mentality.

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  7. At the time, luxury was what people wanted. Also, since the prices of commodities were lower than those of essential services it was all the more tempting. If you have these commodities at a price that you can afford and the essential services are higher then it becomes to easier to spend it on the commodities before the important things, as shown in the following quote, " many commodity and raw material prices, subject to the inexorable law of supply and demand, are at the lowest levels in a century. Essential services depending on contract or government fixation still enjoy the peak price level of recent years". because of this extreme need for luxury, people began spending more than they had, which is why banks started offering loans and such, they saw it as a way to make money. They would lend people what they needed for now, and would eventually get that money back and more (the interest). Now a days, the same thing happens. People who own credit cards spend more than what they can afford, and banks still do it despite the fail that it had back in the 1920's because as Sifiso said, they are covered. If someone doesn't pay them back then they are protected by the law. Therefore, they will get money back regardless and people still want what they can't afford, therefore this cycle continues.

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  8. This new invented way of paying was very sophisticated and people took advantage of it. It is now a days very important and better used today since people know now what they are doing with these cards. When it was created, people just started using it as well as asking for loans and as it was easy and fast, and no physical money was used, people started spending more and more and they got in debts. Banks did not have a way to be sure that they would get their money back and that was the huge problem.

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  9. In the 1920's, because of World War I, the United States had a great economy and therefore people were more willing to spend money on luxury. However, for those of them who did not make a lot of money, they had to buy it using credit. Banks loaned them money because they believed that it is a way to make money and because of the great state of economy. Plus, people thought that stock market was a shortcut to becoming rich. Therefore, some people took out loans from the bank to invest in the stock market because before the september of 1929, stock market was almost guaranteed way to make money.

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  10. Credit purchases are so prominent because almost nobody has thirty thousand dollars in cash to buy a car, and nobody has a quarter million dollars lying around for a house. Although they pose a risk, credit purchases are good for the businesses and for the customers. They allow people to buy luxury items and improve their standard of living. And they help businesses because more products can be sold. As we saw in the reading, after WW1 we made a lot of money buy lending to other countries which then had more money to import our goods. It was a win-win situation for a while until lots of people stopped taking calculated risks and instead borrowed more money than they could pay back. Lending money wisely stimulates the economy, while lending tons of money to people who can't afford it ruins the economy.

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  11. Besides the truth that people after 1920s wanted to spend money on luxury, purchasing from personal credit could also be a marketing tactic of retailers. Before the credit system was invented, customers would only purchase commodities from the cash he/she had. Most likely the person would buy the commodity with his comfort (means never purchase on stuff above his ability to pay). With the credit system, people were often tempted by the luxuries. Then after he purchased expansives with credit, he would have too work harder to keep himself out of trouble. It does seem like a boost for the economy. However, the credit system was fairly new, people thought that was the way to be wealthy therefore they started buying out of his ability by a lot. Nowadays, the credit systems have being floating around for a long time. Even with the freedom of buying stuff from borrowing money, people tend to buy reasonably. Now the credit system is more like a tool for convenience than to create an economic crisis.

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  12. I believe credit purchases were so popular during the1920s because of the low prices. It was the age of invention and luxuries had been in high demand and so the prices were once very high. When the war ended and prices of such luxuries lowered, people jumped at the opportunity. Bank were willing to give out loans because they thought they would prosper in the long run. And, credit is still very prominent today because people STILL don't have the money to afford some luxuries.

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  13. At this time there weren't a lot of wealthy people. Most people were new immigrants and it wasn't easy to take off in this predicament. Being able to buy things that you could only previously fathom about gave people the sense that they were higher than they actually are. Those luxury items that were always so far out of reach were all of a sudden so tangible and that feeling euphoric. It also goes along with the american dream of doing better with time and having something that you would expect your future self to have reinsures hope. Today, it is the same ideology. People buy things with money they don't have to impress not only the people around them but themselves as well.

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  14. The lowered prices was a huge factor in the rising percentage of credit card use. The luxuries that were before really expensive for average people, became cheaper and people began buying things like crazy. The satisfaction that comes from these purchases is what made and still does make people over buy on credit thinking that it is just an easy way to get things they want without having to immediately come up with the money. The 20's being an age of invention and great opportunity, as Zion said, the banks were more willing to give out flexible loans and high credit limits because they expected positive reinforcement; they did it as a kind of investment in the future economy of the country.

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