Boom2Bust.com

Citigroup Hikes Rates For ‘Some’ U.S. Credit Card Accounts

I once had a credit card from Citigroup.

They took it away from me, probably because I wasn’t spending as much as they wanted me to, and when I did rack up a balance, I paid it off monthly.

Not the kind of customer they were looking for.

From Reuters’ Hezron Selvi this morning:

Citigroup Inc has increased interest rates on up to 15 million U.S. credit card accounts just months before curbs on such rises come into effect, the Financial Times reported citing people close to the situation.

Citigroup had upped rates on 13 million to 15 million credit cards it co-brands with retailers such as Sears, the paper said.

In a statement, Citigroup said “We have adjusted pricing and card terms for some customers as part of our regular account reviews. This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles.”

“These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit,” Citigroup told the paper.

Well, that’s one way of helping the American consumer get back on its feet…

Source:

“Citi raises rates on millions of credit cards: report”
Hezron Selvi
Reuters, July 1, 2009

Trouble Ahead For ‘Recession-Proof’ Luxury Market?

Looks like the U.S. luxury market, which kept chugging along throughout 2008, may finally be derailed. From the Chicago Tribune’s Sandra Jones on June 21:

When do you know that the economy is on the mend?

When the wealthy start spending again. And the rich aren’t expected to start digging into their Birkin bags anytime soon.

The luxury market, historically resilient to economic downturns, is forecast to drop an unprecedented 10 percent this year, according to a June report from Bain & Co. The Boston-based firm predicts purveyors of luxury goods won’t experience a full recovery until 2012.

Keeping an eye on the spending of the rich is a favorite American pastime. But it is also key to the economic recovery, said Ron Kurtz, president of the American Affluence Research Center.

The richest 10 percent of U.S. households account for as much as 50 percent of consumer spending, according to the center’s calculations, based on Federal Reserve Board data. Consumer spending, in turn, accounts for about 70 percent of gross domestic product.

“The affluent market is a leading indicator of what’s to come,” said Kurtz. “Given their losses in the value of their homes, investment and savings that they have experienced over the past two years, the affluent are likely to be conservative spenders until these losses have been largely recovered.”

Some ask if there is something else causing rich Americans to pull back on spending. Jones wrote:

One school of thought is the notion that well-heeled shoppers are holding back because they are self-conscious about their wealth in the midst of a deep recession, a trend pundits label “luxury shame.”

The American Affluence Research Center found that 90 percent of the most affluent households have always avoided ostentatious consumption and are “careful spenders and aggressive savers.” Their spending habits aren’t expected to change anytime soon.

The center’s spring 2009 survey found that 68 percent of the respondents have no plans to make any of the following major expenditures in the next 12 months: a car, cruise, boat, new home, vacation home or a home remodel project. That is a record high, as well as a marked jump from 53 percent in spring 2008 and 36 percent in spring 2005.

While the recession was well under way in 2008, luxury spending held up until the financial markets collapsed last fall.

As a result, writes Jones:

Now, glitzy shopping streets from Madison Avenue to Rodeo Drive to Oak Street are dotted with empty storefronts and sale signs…

Source:

“Luxury spending likely to drop 10 percent for 2009”
Sandra M. Jones
Chicago Tribune, June 21, 2009

Weekend Video

From the Morningstar website earlier in the week:

In May, real estate developers met in Las Vegas to discuss the future of the American shopping mall. Judging by The New York Times’ account of the conference, many developers were reluctant (or unwilling) to entertain the idea that the post-financial crisis world could be much different than the environment that preceded it. Not only were they less-than-attentive to environmental and sustainability concerns, they seemed indifferent to the fact that consumer spending had fallen off a cliff and is likely to remain subdued for years to come. Many, though not all, were waiting for things to get back to normal–the way they were before the crash…

Guess these developers haven’t figured out the party’s over yet…

The Fabulous Thunderbirds, “Wrap It Up” (1986)
YouTube Video Link

Personal Wealth Declines By $1.3 Trillion In First Quarter

In case you hadn’t already heard…

From Associated Press economics writer Jeannine Aversa yesterday:

The brute force of the recession earlier this year turned back the clock on Americans’ personal wealth to 2004 and wiped out a staggering $1.3 trillion as home values shrank and investments withered.

Net worth, or the value of assets such as homes, checking accounts and investments minus debts like mortgages and credit cards, declined 2.6 percent in the first three months of the year, the Federal Reserve said Thursday…

While the first quarter was ugly, the hit to Americans’ net worth was worse late last year. In the October-December period, it fell a record 8.6 percent, according to revised figures. That was the largest drop on record dating to 1951.

If Americans continue to spend — no guarantee — Fed Chairman Ben Bernanke and other economists say they think the recession will end late this year. But if shoppers hunker down and cut spending again, that could delay any recovery. Late last year, Americans cut spending at the fastest rate in 28 years.

Some economists believe thrift may be the norm for a while. Aversa added:

Even if things improve, such a dramatic evaporation of wealth will probably make Americans more thrifty down the road, said Scott Hoyt, senior director of consumer economics at Moody’s Economy.com.

“The bulk of consumers alive today have not experienced declines in wealth like this,” Hoyt said. “They are already turning thrifty, and it will stay that way beyond the short term. This has been a significant learning experience.”

Should this be the case, it would not bode well for the U.S. economy, where it is suggested consumer spending accounts for 70% of the nation’s economic activity.

Source:

“1st quarter wiped out $1.3 trillion for Americans”
Jeannine Aversa
Associated Press, June 11, 2009

Weekend Video

This will be the only post on Boom2Bust.com today, as I will be tied up with other things.

However, I leave you with a video from the band CAKE.

I witnessed plenty of things that often reminded me of this song during the party years leading up to the financial crisis.

1982-2007. May you rest in peace.

Have a wonderful weekend,

Christopher E. Hill
Editor

CAKE, “Rock & Roll Lifestyle” (1993)
YouTube Video Link

Where Consumers Are Cutting Back

From an Ipsos/Reuters poll of 23,000 people in 23 countries from April 14 to May 7 (hat tip Financial Armageddon)…

Ipsos polled people in the United States, Canada, Brazil, Mexico, Argentina, South Korea, China, Japan, Australia, India, Russia, Czech Republic, Poland, Hungary, Turkey, Sweden, Italy, the Netherlands, Belgium, Germany, France, Spain, and Britain.

The 23 countries make up 75% of the world’s gross domestic product.

Source:

“Exclusive: Global consumer confidence stabilizing”
Michelle Nichols
Reuters, June 2, 2009

And Now, Some Good News About The Recession

Yes, it is possible for good news to come out of an economic downturn every once in a while. From the Associated Press’ James Hannah last week:

Thrift-driven Americans are fixing up, making do and reusing so much to cope with the recession that the drop in throwaways means less fill for landfills.

To deal with the drop-off in dropoffs, landfills are laying off workers, reducing hours of operation and hiking disposal fees, with the increases passed along to cities, businesses and consumers.

Okay. Good news, unless you’re in waste management. Continuing on:

“You can look at waste and see what the economy is doing,” said Tom Houck, manager at the Defiance County Landfill in northwest Ohio. He’s watched the amount of trash arriving at the landfill plunge 30 percent in the past year.

With consumers cutting back on new purchases, there is less packaging to throw away. The downturn in new housing means less waste from construction materials such as insulation and from discarded drywall and lumber. Restaurant waste is down because people are eating out less.

“We’re seeing this all over the country,” said Bruce Parker, president and CEO of the National Solid Wastes Management Association.

Environmentalists applaud the trash slash.

“That will mean the landfills will last longer,” said Ed Hopkins, director of the environmental quality program for the Sierra Club. “That is good for the public because nobody likes to live next to a landfill.”

Hopkins said the reduction in waste is good for the environment because even modern landfills can leak, enabling pollutants to seep into groundwater.

Thom Metzger, spokesman for the National Solid Wastes Management Association, said that while national figures won’t be available for months, the association is hearing about the decline from many members.

“Not cool!”

Source:

“Landfills hurting as consumers repair, reuse”
James Hannah
Associated Press, April 25, 2009

Auto Insurance Fraud Rises As Economy Sinks

Last week, I talked about boat owners discarding their vessels during these tough economic times. In some cases, individuals committed insurance fraud in an attempt to recoup some money from their “investments.”

Now, I hear vehicle owners are doing the same with their cars and trucks. From ABC News’ Emily Friedman and Vanessa Weber today:

Across the country, desperate Americans are lighting their own cars on fire when they can no longer afford the payments. Then they report the vehicles stolen and try to collect the insurance money…

According to James Quiggle, the spokesman for The Coalition Against Insurance Fraud, such cases have been on the rise since the economic recession began in December 2007.

“A growing number of stressed-out consumers around the U.S. are ditching unwanted vehicles to try and stop them from falling off a financial cliff in the recession,” said Quiggle.

According to the Insurance Research Council, an organization that does research on behalf of the insurance industry, automobile insurance fraud added between $4.8 billion and $6.8 billion to auto claim payments in 2007, the most recent year data was compiled.

Ford Pinto: No arson required

Recent studies confirm this type of fraud is increasing. Friedman and Weber wrote:

But the uptick in the number of cases is undeniable: The National Insurance Crime Bureau released a study in 2008 reporting that owner give-ups — the term used to describe cars that are abandoned by owners who are oftentimes looking to gain financially from the act — skyrocketed in five major cities, including Houston, Las Vegas, Phoenix, Los Angeles and Chicago.

The same report indicated that these fraud cases were on the rise, according to reports from various states. New York State’s Fraud Bureau reported a one-third increase in the number of fraud cases in 2008. Florida and Wisconsin reported similar trends.

In 2007, the latest year for which statistics on arsons nationwide are available, the U.S. Fire Administration estimated that approximately 20,500 cars were intentionally set on fire.

You can watch the accompanying 5 minute 31 second video segment here.

Source:

“More Auto and Car Insurance Fraud Cases In Bad Economy”
Emily Friedman, Vanessa Weber
ABC News, April 8, 2009

Recession Almost Over? Show Me The Evidence

Here’s a cheery headline making the rounds today:

“New signs emerge that recession may be near bottom”

Too bad the “evidence” put forth in the accompanying article isn’t exactly what I’d call compelling. The Associated Press’ Christopher S. Rugaber wrote today:

New signs that the recession could be nearing a bottom emerged Thursday, as factory orders were far better than expected and the Dow industrials surged over 8,000 for the first time in two months.

The Commerce Department said orders for manufactured goods rose 1.8 percent in February, reversing six straight monthly declines and easily beating estimates of another drop. Other economic indicators came in better than expected Wednesday, including construction spending and pending home sales.

The Associated Press piece suggested the recession could be near a bottom based on “far better than expected” factory orders that were up 1.8% in February from the previous month. Pulling up Commerce Department data for orders of manufactured goods from the beginning of this recession (December 2007) reveals that since that time, orders for manufactured goods were up a total of 7 out of 15 months for which data is available for. Factory order levels even went on a tear and went up month-over-month from March through July of last year. In fact, February’s reading of 1.8% was surpassed back in December 2007 and June 2008, which saw increases of 1.9% and 2.1%, respectively.

All of this during the ongoing recession.

Based on these findings, I find it hard to argue that a one-month increase in factory orders means we’re near a bottom.

The AP piece also suggests we could be nearing a bottom based on surging stock prices. Long-time readers of this weblog might remember something I wrote back on October 14, 2007:

Wall Street As An Economic Barometer

The Wall Street Journal’s Economics Blog caught up with Merrill Lynch economist David Rosenberg back on October 2 as he examined the effects of Federal Reserve interest rate cuts on the U.S. stock market. Rosenberg found that the stock market always rises in the first month after an initial interest-rate cut, and the average increase is almost 4%. It’s interesting to note that since the federal funds rate cut back on September 18, the Dow Jones Industrial Average and the S&P 500 are up 2.6% and 2.8%, respectively.

Rosenberg also looked at whether or not recessions happen while the stock market is booming. In looking at the 1990-91 recession, he saw that the S&P 500 peaked on July 16, 1990, after rising 3.4% over the previous month. The recession also happened to start that July. Looking back further, Rosenberg studied the recession of the early 1980s and found that the stock market peaked on February 13, 1980, even though a recession had started the month before.

As Rosenberg’s findings demonstrate, surging stock prices don’t exactly correlate with a robust economy. Stock indexes may even peak— just as the economy starts to nosedive.

Once again, the Dow Industrials heading over 8,000 for the first time in two months isn’t a convincing argument that we’re about to see an economic turnaround.

Rugaber also threw in two more indicators for which I had problems seeing a correlation. He wrote:

Other economic indicators came in better than expected Wednesday, including construction spending and pending home sales.

Take a look at the following chart for U.S. construction spending from the beginning of the recession:

Source: New York Times

As you can see, monthly construction spending actually improved month-over-month in March, May, August, and September of last year. And still, recession. I’d be hesitant to declare a bottom is near from one month of “better than expected” construction spending data.

Finally, we come to pending home sales. From an AP colleague of Rugaber’s, Alan Zibel, on Wednesday:

An index that tracks signed contracts to purchase previously occupied homes rose in February from a record low a month earlier as buyers took advantage of deeply discounted prices and low interest rates.

The National Association of Realtors said Wednesday said its seasonally adjusted index of pending sales for previously occupied homes rose 2.1 percent — in line with expectations — to 82.1 in February from January’s record low of 80.4.

Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer for future home sales.

However, Zibel dispelled the notion of a U.S. housing market recovery taking place anytime soon when he wrote:

Prices, however, are expected to keep falling for at least another year. Tens of thousands of homes are tied up in the foreclosure process and not yet for sale. Plus, as the recession deepens and job losses mount, many buyers are likely to stay on the sidelines.

The Realtors estimate that 45 percent of existing home sales are now foreclosures and other distressed properties.

Pending home sales up? Yep, but almost half are being sold at deep discounts. Not exactly the sign of a healthy real estate market, or offering hope for a consumer spending rebound, if you ask me.

Folks, I hate recessions as much as the next guy. But if you’re going to tell me we’re coming close to a bottom, you darn well better have better evidence than this.

And before I forget, Rugaber also wrote the following in a separate piece today:

Fresh signs that factories are coming back to life and a bank CEO’s encouraging outlook fueled more hopes Thursday that the economy may soon emerge from the cellar, briefly lifting the Dow Jones industrials over 8,000 for the first time in two months…

Bank of America CEO Ken Lewis also bolstered the financial markets when he told CNBC that the recession is “getting close to the bottom.”

You remember Ken Lewis, don’t you? Back on June 21, 2007, I wrote on Boom2Bust.com:

In an interview with Bloomberg on Tuesday, Bank of America’s Chief Executive Officer Kenneth Lewis said the U.S. economy will pick up speed due to a recovery in the housing sector. Lewis predicted, “You’ll see the economy begin to pick up in the third and fourth quarters,” and the slowdown in home sales is “just about to be over.” He went on to say that the housing market will begin to improve in the next month or two, forestalling a recession, according to Bloomberg. Lewis believes that job growth will lift home prices and reinvigorate construction by early 2008.

That was summer 2007. A year later, on July 21, 2008, I wrote:

This morning, I read a piece by Marshall Eckblad of the Dow Jones Newswires on the CNN Money website. Bank of America Corp. Chief Executive Ken Lewis shared his outlook on the U.S. economy and housing market earlier today, after which Eckblad wrote:

Chief Executive Ken Lewis said Monday that the U.S. economy would see “sluggishness” through the rest of 2008 but eventually would stabilize this year and then begin its recovery in the early part of next year. Lewis made the comments during a conference call with analysts to explain the bank’s second-quarter earnings results…

Lewis said one component of those optimistic forecasts is his projection that the peak of the housing crisis is growing closer. “We see housing price depreciation being mostly over this year, maybe going into next year,” Lewis said.

I’ll leave you all with the following excerpt from that July 2008 post:

The Wall Street Journal’s Mark Gongloff pointed out yesterday that some individuals keep calling for a turnaround in the economy, housing market, what have you, only to be proven wrong time and time again. Gongloff said:

Like Chicago Cubs fans always looking to the next season, there are analysts who have been calling for a turnaround for months despite evidence to the contrary, yelling their hearts out for what so far has been a losing cause.

According to their theory, this has all been a fever dream, a midcycle slowdown like the one the economy suffered in 1998, when stocks briefly swooned, but the technology bubble quickly went right back to inflating. This is the same crowd who dismissed the collapse of the housing market because it’s just a small part of gross domestic product and who said the subprime mortgage meltdown would be no big deal.

And now, $400 billion in losses and one bear market later, they’re still calling for the rosy outcome…

Sources:

“New signs emerge that recession may be near bottom”
Christopher S. Rugaber
Associated Press, April 2, 2009

“US Factory Orders-STATS-Historical, New Orders”
FXStreet.com, April 2, 2009

“Pending home rise 2.1 percent in Feb. from Jan.”
Alan Zibel
Associated Press, April 1, 2009

“More signs of economic hope; grim jobs report due”
Christopher S. Rugaber
Associated Press, April 2, 2009

One Recession, Two Recession…

Good news. A non-profit global business organization is predicting that the current recession will end later this year. Bad news is, it’s also saying there’s the potential for another one to emerge in 2010. From Reuters tonight:

Although the U.S. economy is expected return to growth later this year, there is a danger of a second recession if monetary easing and a weak dollar leads to increased inflation expectations, a report said on Wednesday.

Massive stimulus spending and moves by the Federal Reserve to fuel economic activity is expected to jump-start the anemic U.S. economy in the last quarter of this year after it contracted 6.3 percent in fourth quarter of 2008.

But the Fed’s moves to boost the economy by slashing interest rates and buying up billions in government debt could have undesired consequences, The Conference Board, a private research group, said in the report.

“If the United States experiences a too-rapid recovery, there may be a risk of another recession in 2010,” said Bart van Ark, vice president and chief economist of The Conference Board.

“It may fuel expectations for a return to inflation, adding to the uncertainty concerning the pattern and path of economic recovery,” he said.

The U.S. economy has the potential for a “double-dip” recession, van Ark noted, similar to 1980 and 1982, as commodity prices rise on the back of a falling dollar and monetary easing.

He added, however, that the likelihood of this scenario taking place is small as deflation risks are great, while government stimulus spending should stem further economic decline and ease the flow of job losses.

Others would disagree with the assumption the U.S. economy will grow later in the year. Just last week, National Bureau of Economic Research President Emeritus and Harvard economist Martin Feldstein predicted the recession will last into 2010. From Reuters’ Jason Subler and Shengnan Zhang on March 24:

The recession in the United States will stretch well into next year, probably raising the need for another fiscal stimulus package at least as large as the first one, prominent economist Martin Feldstein said on Tuesday.

Feldstein, a Harvard University professor who is a member of President Barack Obama’s Economic Recovery Advisory Board, told Reuters that the stimulus would offset only a relatively small piece of the likely fall in spending, exports and construction.

“I’m afraid that the economy will continue to slide down well into next year,” Feldstein, a former head of the National Bureau of Economic Research, said in an interview in Beijing where he was attending a conference.

“I don’t know when it will end, but the forecasts that it’ll end later this year I think are too optimistic,” he said of the recession.

Sources:

“U.S. seen facing danger of 2nd recession next year”
Reuters, April 1, 2009

“U.S. recession to last into 2010: Feldstein”
Jason Subler, Shengnan Zhang
Reuters, March 24, 2009

Credit Card Write-Downs At All-Time High

Stories related to credit card woes probably shouldn’t surprise anyone these days. From Reuters this afternoon:

Credit card write-downs soared to record levels in February, representing an all-time high in the 20-year history of the Moody’s Credit Card Index, as job losses mounted, the rating agency said Wednesday.

Credit card charge-offs, the write-down of uncollectable debt, advanced decisively to 8.82% in February, marking the sixth consecutive month of increases. The level is more than 300 basis points higher than a year ago.

Sharp increases were experienced across several large issuers and have closely followed the surges in unemployment occurring over recent months, the rating agency said.

“We expect that the charge-off index will threaten double digits by the end of the year, in light of our expectation that the economy will worsen throughout the remainder of the year,” Moody’s said.

It predicts the charge-off rate index will peak at about 10.5% in the first half of 2010, assuming a coincident unemployment rate peak at 10%…

Delinquency rates on credit cards also advanced in February. Moody’s delinquency rate index broke through the 6% level to 6.14%.

Got Good Credit? Rates as low as 7.88%. Borrow up to $25,000 to help fund any project. No collateral needed.

This news comes a day after the U.S. Senate Banking Committee signed off on legislation seeking to ban “abusive” credit-card practices. From the Associated Press’ Laurie Kellman yesterday:

Democrats in Congress are taking a swipe at credit card issuers and their increasingly creative reasons for raising fees on strapped consumers, sparking a well-financed duel over how to crack down on alleged abuses.

Striking the right balance between getting credit moving again and protecting consumers who depend on it is a long and complex process and nowhere near complete. But lawmakers were hoping to advance consumer-friendly legislation before they head home for Easter at the end of the week and face their constituents – 12.5 million of whom are out of work.

“Right before this break coming up I thought it was a good time to try to deal with it, get it done,” said Senate Banking Committee Chairman Christopher Dodd, D-Conn.

His panel led the way Tuesday by narrowly voting to send the full Senate a bill that would ban some of the many reasons credit card issuers raise interest rates and fees on consumers, raising the hackles of industry advocates who say such limits would ultimately cost consumers more money.

“Making this credit available is a very risky business and the committee’s action today will unfortunately make it harder, not easier, for banks to continue doing so,” said American Bankers Association’s Kenneth J. Clayton.

Sources:

“Uncollectable credit card debt hits record high”
Reuters, April 1, 2009

“Congress considers limits on credit card companies”
Laurie Kellman
Associated Press, March 31, 2009

Americans See First Tax Hike On April Fool’s Day

Kind of ironic that on this April Fool’s Day, Americans are witnessing the first tax increase of the Obama administration. Brad Schiller, an economics professor at the University of Nevada-Reno, wrote in the Wall Street Journal today:

“I can make a firm pledge . . . no family making less than $250,000 a year will see any form of tax increase.” Remember that? It was Barack Obama, campaigning to become president last Sept. 12 in Dover, N.H.

Indeed, he promised repeatedly that 95% of American families would get a tax cut. So it’s especially fitting that he chose April Fools Day to implement his first tax increase — which will fall mostly on individuals and families who do not make anywhere near $250,000 per year.

Early in February, the president signed a law to triple the federal excise tax on cigarettes — which will jump from 39 cents per pack to $1.01 today. His administration projects this tax hike will bring in at least $38 billion over the next five years.

If you don’t smoke, maybe you don’t care. Maybe you even think a higher “sin tax” is a good thing. But health issues aren’t the only concern here. There are also questions of fairness, federalism, macroeconomic impact, and crime.

The fairness issue is particularly troubling. According to the Centers for Disease Control and Prevention, only one in five Americans smokes, so the excise targets a minority — and over half of all smokers are low income, and one of four are officially classified as poor.

Mr. Obama prefers to tout his tax cuts for low-income households. But his “stimulative” Make Work Pay tax cut gets dribbled out at $8-$10 a week. A pack-a-day smoker will pay half of that back in higher cigarette taxes. Smokers getting welfare, unemployment or disability checks instead of paychecks won’t get as much in tax cuts, but they will still pay the whole cigarette tax increase. Anyone concerned about widening income inequality should have second thoughts about this distribution of the tax burden.

We should also note how this tax increase affects state finances. State governments rely on their own cigarette excise taxes for hefty revenue streams. In 2008, according to the National Tax Foundation, state governments took in $15.4 billion in cigarette taxes. Hard-hit Michigan, Pennsylvania, and California each took in over $1 billion; New York and Texas took in $1.5 billion each.

Higher taxes discourage cigarette sales. Nobel economist Gary Becker pegs the long-run price elasticity of demand for cigarettes at 0.8 — i.e., a 10% increase in price causes an 8% decline in unit sales. The Obama tax hike translates into a 13.3% increase in the average pack price. That implies a 10.6% decline in unit sales — which the National Tax Foundation has calculated adds up to a $1 billion overall revenue loss for hard-pressed states.

Because Southern states have low tax rates (most less than 40 cents per pack), the federal tax hike raises their cigarette prices by a larger percentage and thus cuts deeper into their unit sales. New York, by contrast, has the highest state taxes ($2.75 a pack) and prices, so it gets hit less in percentage terms. The Tax Foundation estimates a 12.6% revenue loss for South Carolina this coming fiscal year, and a 6.7% loss for New York.

None of this is good for the economy. Consumers and state governments are already having a tough time making ends meet. Burdening them with a new $38 billion tax and a $1 billion cut in revenues isn’t going to help create jobs. Estimates by the National Association of Tobacco Outlets of the job losses in cigarette manufacturing and distribution alone exceed 100,000.

Smugglers and counterfeiters won’t lose their jobs, though. Both the General Accounting Office (GAO) and the Alcohol, Tobacco, and Firearms (ATF) agency have concluded that the multibillion-dollar cigarette-smuggling business grows with every excise tax increase. The ATF and GAO also believe that cigarette-smuggling is a form of cash laundering and profits for both organized crime and terrorist organizations.

Clearly, we were fools to believe that if we weren’t wealthy, Mr. Obama wasn’t going to raise our taxes. We’ll be even bigger fools if we acquiesce to further tax increases of this kind.

Don’t hold your breath, professor. I predict we’ll see a lot more taxes and fees being implemented by all levels of government down the line. And I suspect the powers-that-be aren’t done taxing tobacco yet either.

Smoke one for the Gipper?

Source:

“Obama’s Poor Tax”
Brad Schiller
Wall Street Journal, April 1, 2009

Confronting The New Economic Reality

If you’re a regular reader of Boom2Bust, you may have noticed a drop-off in the number of posts lately. A lot of that has to do with other projects requiring my attention. However, I’ve also spent a good deal of time and effort trying to keep one step ahead of the new economic reality, which for me has meant higher costs. Let me give you some examples of what I mean. First off, those of you who follow the financial news on a regular basis are probably aware of the recent strength in the U.S. dollar against other currencies. Since last fall, the greenback has benefited from de-leveraging and repatriation as traders fled riskier assets. At the same time, the British pound has weakened against the dollar. Therefore, as recent as early this morning I’ve been buying products and services from the United Kingdom (which I’ve been meaning to get) to take advantage of the favorable exchange rate. However, it appears my spending spree in Great Britain might be on hiatus for a while, as one Bloomberg headline shouted this morning, “Dollar Rally Crumbles as Fed Ramps Up Printing Press.”

In another example, I’ve been acquiring a number of premium hand-made imported cigars before April 1, when federal taxes on cigars and other tobacco products will be hiked to supposedly provide $35 billion for children’s health care. In the case of big cigars, the federal tax will go from a nickel to 40 cents per stogie. Not looking forward to paying higher prices for my puros, I decided to pull a JFK and build what I like to call my “Pre-Obama Stash.”

“Say hello to my new friends”

For the most part, I’ve been able to avoid dealing with the new economic reality. Yet, I know this can’t last forever. Meanwhile, others have already been forced to confront their deteriorating situation here in the United States. And elsewhere for that matter. On the Digital Journal website this past Tuesday, Adriana Stuijt talked about the recent boom in “survival” vegetable gardens. She wrote:

From seed producers and greenhouse growers to retailers, most report booming sales in the United States and Europe. And the seed producers say this is mostly due to ‘family financial issues.’

A Texas newspaper reports from Fort Worth that this happens every time there is a downturn in the US economy, quoting Rick Archie, third-generation owner of Archie’s Gardenland on the west side of Fort Worth, founded in the middle of the Great Depression – 1934. His vegetable plant sales have increased 20 to 25 percent so far this year.

At Russell Feed in Haltom City, Texas, manager Carl Cathey also reports that his vegetable plant sales have soared 50 to 60 percent this year.

“Of course, a lot of it are replacements for people who got frosted out and came back for more,” Cathey conceded. “But all in all, people seem just hungry to grow vegetables. Seeds are just now starting to move, but they’re up about 20 percent in the last couple of weeks.”

Park Seeds of South Carolina rushed out multi-seed packets called Victory Garden, lifting the name from successful federal programs during World Wars I and II that boosted home garden production in the United States and also in the besieged United Kingdom, whose citizens all had to become good self-sufficient in a hurry when the Nazis started attacking the US convoys to their country.

In the United States, W. Atlee Burpee Co., the Pennsylvania-based pioneer in the international mail-order seed business, which also supplies major chains, matched Park Seeds with Money Garden. Its priced at $9.95 for a packet that will grow six vegetables.

If weather doesn’t get in the way, Burpee estimates that $50 in seeds and fertilizer can produce $1,250 worth of groceries purchased at a supermarket.

Not a bad return. Stuijt added that Burpee President George Ball, Jr., compares these new vegetable plots to a “new age victory garden.” From the piece:

“It started with the spike in oil prices, then the mortgage and credit crisis, plus the food scares (e coli and salmonella). Most people garden for taste. But there’s a strong argument to be made that growing your own vegetables is also a cost saving proposition. A family of four can save a lot of money growing their own vegetables.” And sales of vegetable seeds generally at Burpee “are exploding across the board,” Ball said.

During the last week of February, orders were up about 25 percent over the same period in 2008, far more than the seed producer expected. “Last year, we saw increases of 15 to 20 percent because of the [salmonella] food scare over tomatoes and peppers,” he said. “And we thought we’d see a back-off, not an uptick.

“We never anticipated the mortgage crisis and the effect on people’s 401(k) retirement accounts. And we haven’t seen produce prices back down when fuel prices dropped last fall,” Ball said, rattling off reasons why more folks might be planting vegetables.

Keeping on the topic of food, one of the biggest hits on YouTube recently has been a series of ten videos entitled, “Great Depression Cooking With Clara.” Back on February 28, the Chicago Tribune’s Renee Enna wrote:

One of the hottest video hits on YouTube features a saucy, dark-haired Italian who knows her way around a kitchen.

Is it a sign of the times that it’s neither Rachael Ray nor Giada De Laurentiis, but rather a 93-year-old great-grandmother named Clara Cannucciari who cooks in a kitchen that looks like it was last redecorated when Richard Nixon was president?

“Great Depression Cooking with Clara,” a series of 10 videos shot by her filmmaker grandson Christopher, shows her skillfully preparing the humble Italian-American fare she remembers from that other cash-crunched era—pasta with peas and potatoes, egg drop soup, pepper and egg sandwiches.”It was cheap and it was nourishing,” Clara Cannucciari said Friday from her upstate New York home. “My mother used to make [the dishes] during the Depression. These are all simple things to make.”

The videos have become an Internet phenomenon, and Clara is suddenly fielding media requests from all over. She’s set to appear next week on the “CBS Evening News with Katie Couric.”

Despite all the fanfare over the videos, Enna reminded us that their purpose should not be forgotten. She added:

But let’s not forget Clara’s frugal approach to cooking, a strategy for survival. Her stories about great poverty—in the winter, she said, the family buried food in the snow because they didn’t have a freezer—are bittersweet, yet fascinating.

As Clara recalls in one video, “Everything was terrible,” she says of the time. “But we had good food.”

Sources:

“Boom in survival vegetable gardens in U.S., Europe”
Adriana Stuijt
Digital Journal, March 17, 2009

“’Great Depression Cooking With Clara’ videos are a YouTube sensation”
Renee Enna
Chicago Tribune, February 28, 2009

Pet Owners Pamper Cats And Dogs Through Recession

I’ve been hearing more stories of pets being abandoned as of late, so the following from Bloomberg’s Nadja Brandt was something a little bit different. And I emphasize “different.” Brandt wrote today:

The recession is little deterrent for Los Angeles residents who insist on body wraps, massages and aromatherapy — for their dogs and cats.

“I definitely would first stop coloring my hair before not taking my dogs to get pampered,” said Adriana Merida, 36, owner of two Havanese named Otis and Zoe. She takes the dogs to members-only The Club Beverly Hills, where they can partake of yoga, Jacuzzi soaks and kosher meals.

Such indulgence contrasts with an increase in animals surrendered to shelters across the U.S. by owners who can’t afford their pets because of economic setbacks. Southern California has enough wealth to sustain companies that supply upscale pet care, said Joan Storms, a retail stocks analyst at Wedbush Morgan Securities.

In Hollywood, LA Dogworks offers day care with aromatherapy and hydrotherapy, along with a so-called Fetchmobile to chauffeur pets for its 2,000 clients, who include actors Jake Gyllenhaal and Nicole Richie. It plans to open a second 11,000-square-foot (1,000-square-meter) facility in West Los Angeles later this year. LA Dogworks charges $45 for 12 hours of day care and $75 for a one-hour massage.

Which one’s the princess?

On the other hand, Brandt pointed out that not all pets were getting the celebrity treatment. She added:

At the city’s shelters, meanwhile, animal intakes increased 20 percent last year, mainly because of the housing crisis, according to the Web site of Los Angeles Animal Services.

“The current economic crisis has definitely worsened the situation,” said Martin Mersereau, a spokesman for People for the Ethical Treatment of Animals in Norfolk, Virginia. “People whose homes have been foreclosed often evilly and cruelly leave their animals behind. We have seen this across the U.S.”

Source:

“Doggy Yoga, Massages Thrive in Los Angeles as Shelters Overflow”
Nadja Brandt
Bloomberg, February 25, 2009