As credit cards became introduced in the late 1950s, they have increasingly gained use and popularity worldwide. Most consumers find it most efficient to access funds quickly in order to pay for goods and services, as an alternative to carrying cash these days. Even with such advanced technology, we are beginning to see new accommodations and features that cards hold, simplifying the process altogether. Yet, the enormous impacts that occur worldwide can have significant influences on card holders, in addition to the many that abuse the service in impulsive buying and spending that sets them back further financially.
To begin with, a countries GDP statistically fairs better when the presence of purchasing on credit is available. Here it not only signifies the greater development a country may have such as in the case of the United States, but this holds true in the sense that millions of transactions and currency are constantly in motion. “While card payments contributed less to developed markets, electronic payments help GDP jump in some emerging economies – by as much as 4.89% in China, 1.28% in Chile and 1.15% in Brazil…”(Booton)
As many third world and lower developed countries don’t have access to electronic payment it further hurts their economy as many keep their earnings within their homes and out of banks. These factors have enabled credit card companies to take action and expand their services, “in e-payments to issue cards so that they can better control their funds. In these cases, where the underbanked become banked through credit and debit cards, transactions are easier and safer.”(Booton)
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Through methods such as these being implemented, it brings these countries further into the twenty-first century in addition to emphasizing easy spending as well as overall aiding their economy and the amount of money flow seen across the board. By increasing both the supply and demand of goods the overall gross domestic product of a country it can directly affect the per capita value, which then translates to a greater income for citizens.
In continuing in the matter of per capita, it can also specifically be looked at within our very own, New York State. In May of 2018, New York State had one of the largest per capita credit card balances nationwide, “at $3,710, almost 20 percent higher than the national average of approximately $3,100 per capita…”(Credit Card Debt in New York State) Because of the vast population of New York City, which holds upwards of 9 million residents, it is also a prime location for stores shopping and various attractions of which all generate significant amounts of revenue.
While as mentioned before, consumers are drawn to card payment because the efficiency and easy to use services but because so much money is in circulation in constant transactions both in-store or online it can also lead to inflation, which in this case it would be necessary to implement a tight monetary policy to alleviate the problem. According to the Financial Times, “we probably need a little bit of restrictiveness to [allow] the adjustment of the labor market to a more sustainable path.” This type of government intervention is taken into the hands of the Federal Reserve, which has carried out their responsibilities since 1913.
In analyzing the AS curve and the segments of k/l/m, because of the continuous spending associated with the use of credit cards verges on the economy entering the “m” phase in which it begins to reach its peak and precautions are taken, currently by Federal Chairman Jerome Powell under the Trump Administration. Demand-pull inflation, that specifically arises when consumers pull prices by spending more on an increased number of goods increasing the demand of those products as they feel they can afford multiple things for a small monthly payment when paying on credit.
The presence of credit cards has also historically and presently impacted the standing of the United States economy, and the Federal Reserve. This separate institution sets the nations monetary policy and oversees factors such as money supply dispersed to banks, interest rates, and also remains the “lender of last resort.” As credit increasingly became a problem prior to the Great Depression, as a result of millions of consumers buying on store credit, yet just years ago problems also arose greatly affecting the economy and the overall status of the United States.
The Federal reserve declares that a payment not made before the thirty days given period is therefore deemed as late, in facing such lateness an increased interest rate in addition to damage regarding ones credit score also occurs. This continues on to no only affect that individual but also the economy as a whole if a similar pattern occurs for millions of other Americans. “Once a consumer reaches a certain threshold of credit card debt, they are spending so much on interest and minimum payments that they don’t have money for new purchases” which was clearly demonstrated in the Great Recession beginning in December of 2007(Watson, Pocket Sense).
The continuous and ongoing “trade wars” primarily refers to a country’s imposition of tariffs in order to make good less accessible to a competing country through taxing those goods. Competing countries go back and forth upping the prices of the tariffs, yet this also contributes to the overall cost increase of a product. The United States currently has tariffs implemented in the areas of high demand including aluminum, solar panels, steel, and washing machines, much of which are developed overseas(Jespersen).
Although, the initial imposition of these tariffs have little effects on consumers initially, as typically a number of months are needed before the actual change and effects of these tariffs can be seen. Consumers can best see benefits by paying close attention to the news and largely taking notice of the ongoing events at home and abroad. Because of these various factors, a major decrease may be had in electronic payments, as prices rise consumers are much less likely to make larger purchases that involve important resources as described above.
Many may, “Consider repairing products like appliances instead of replacing them, particularly if the cost of a new one is out of your budget.”(Jespersen) If too many of this sudden retraction of purchases, it can certainly injure the domestic markets, yet its also increasingly important to consider that larger goods such as cars are made out of these materials and aren’t a good that are consistently purchased daily by every consumer.
Similarly to that of the effects of trade policies, the concept of weak and strong dollar for trade can also impact credit cards in the same manner. As a strong dollar relates to a country’s currency having the ability to buy more of foreign county’s goods this becomes substantially helpful in cases such as the United States having the opportunity to buy other goods, such as electronics from China, at a much cheaper rate. For the possession of a weaker dollar…….
Furthermore, in intervention theories, there are various specific regulations that the government must abide by despite other action they may wish to take. Guidelines include the inability to change interest rates without informing that party in which their rate is being adjusted. Traditionally if an interest rate is changed notification through the mail, or through ones account online is often sent out.
Consumers also have the power to refuse the “interest rate hike” which in most cases will freeze the interest rate, unless another late payment arises in which violates the set terms. In addition to that, interest rates must also remain under 25%, in which these Usuary laws specifically look out for consumers. As interest rates increase, exceeding 25% would make it extremely unreasonable and difficult to pay back. It is also important to note that percent value can vary depending on specific states. In New York, “there is a 25% maximum “criminal” rate.”(Hayes)
Most interest rates can fall between a 19% range which is well above the value of inflation range. Yet, as a result of factors such as these specific companies have been developed such as Credit Karma which offers fairly low interest rates on credit cards, even zero percent in opening and then later increasing to a value above twenty percent, and offer that as a major selling point to help differentiate themselves from other competition.
Lastly, facing the four types of unemployment ranging from structural, frictional, seasonal, and cyclical that occur on a daily basis can have tremendous impacts on electronic purchases and the use of credit cards. Presently as the United States Government Shutdown that arose on December 22 of this past 2018 has continued to persist as a result of the dispute regarding President Trump’s proposal of a five billion dollar wall dividing the United States and Mexican border.
While for millions of everyday Americans this causes much concern in various different areas, thousands of government employees are truly facing the hardship. “The shutdown affects more than 800,000 federal workers in nine different departments, as well as several federal agencies.”(AlJazeera) The following departments of Agriculture, Justice, Transportation, Homeland Security, Housing and Commerce, to just name a few, have been increasingly affected.
Because of the essential work they do they are then forced to work without pay. This directly plays into the role of credit card purchases, as thousands of Americans are not being paid, savings and other assets can on carry them so far. Buying household items and necessities such as groceries will likely need to be paid for on credit to help families and individuals get by. This current period of cyclical unemployment for hard-working Americans will continue to get worse if the shutdown continues, and days go by without receiving their earned pay.
Overall, the growing presence of credit cards has drastically affected the United States economy in a variety of beneficial and costly ways. As millions upon millions of individuals make transactions daily the status of the economy increasingly becomes controlled by everyday consumers. As future technology and spending also occur, it may only be a matter of time before our beloved credit cards are replaced with yet another new method of payment.
