Wednesday, January 29, 2014

Will Cyber Terrorism Destroy The American Economy?


Last year I shopped in Target once…about three days after Christmas.  I used my credit card and got caught up in the huge ID theft caper perpetrated by that Russian teen.  My credit card issuer emailed me and notified me of the breech, canceled my old card, and issued me a new one.  I was one of  70 million that got caught up in the mess and I did indeed take advantage of Target Corp's paying for a free year of credit monitoring.  We later learned that prestigious Nordstrom's also suffered a credit card breech.  Still later, we learned of even more breakdowns from other retailers.  Then, just today, the headlines are trumpeting still another breech by the Michaels stores.

What does all this have to do with that personal savings chart shown above?  Well, it tells me that we may be looking toward a huge spike in the personal savings rate in the coming months.  Why?  Because, like me, I'm sure if we consumers begin suffering more of these invasions of our credit accounts we'll be thinking twice about using one with our favorite retailers.  And since consumer spending is about 60% of the economy need I say what level of economic depression we may be headed for?

Ironically, there are simply no credible trends one can gain from looking at our national savings rates.  That's because we sometimes boost our personal savings because we are doing so well personally, or we boost our savings because we fear for what's coming down the line.

For example, if you look at the average savings rates since 1950, you'll see that the average rate of savings hovered at around eight percent of disposable income.  We saw a spike in the 70's as the nation began seeing the effects of inflation brought about by a huge boost in government spending to finance the Vietnam War and Johnson's Great Society programs.  In the late 70's we had Jimmy Carter and the populace, scared out of their minds, began banking on Armageddon and sending the savings rate up to over 12 percent.

After a brief decline in Reagan's first year a vibrant economy allowed Americans to begin again to put something away for a rainy day.  Since then we've seen a steady decline as the middle class simply has nothing left to save.  Our current savings rate is stuck on a stagnant 3.7 percent.

But that may change very quickly!  As I said, if every time we swipe a credit card at Walmart or Target or should I ever be able to afford a pack of hankies at Nordstroms, if my credit accounts become vulnerable to still more Identity theft, I'll confine my buying to what greenbacks I have in my wallet…and that's disaster for retailers.

For those of you who don't know, all of Europe and Asia are well ahead of us with credit card protection.  While we are still using those magnetic strips, Asian and Europe use a computer chip that imparts a variety of code that so far has stumped ID thieves.  Retailers are reluctant to deploy that system because it would require a hardware swap out projected to cost $7 billion dollars nationally.  However, we may see a tiny light at the end of the tunnel…just this week Mastercard told their retailers that, heretofore they will no longer absorb those credit card losses and will assign it to the retailers who allow their systems to be breached.

Until the problem is resolved we might all be a little more cautious with our credit cards.  Although we don't' absorb the losses our credit accounts are up for grabs and that's simply not acceptable.  And since debit card holders ARE responsible for those losses, if they continue to use debit cards for retail transactions, they are committing financial hari-kari.

It will be quite interesting to see what the personal savings rate turns out to be for 2014.  Folks just might tire of using credit and opt to save more in anticipation of a decline in spending, massive retail layoffs and a still struggling Obama economy.  Then, come to think of it, Americans may have little to save after paying those huge Obamacare premiums with those punishing co-pays….the biggest consumer rip off of all.

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