Signs of the Times

History suggests that when cash is tight, people are forced to become more resourceful. At first, they think about how they can get by with less of it. Then they look for ways they can get their hands on more of it. And finally, they try to come up with substitutes -- either goods or services -- they can exchange with others to get what they want.

I've highlighted a number of articles at Financial Armageddon that detail how formerly spendthrift Americans are changing their habits. The following two reports detail other ways that people are adapting to tighter money and deteriorating economic circumstances:

"Hard Times Are Good Times at Pawnshops" (MSNBC):

Quick cash a lure when it ‘doesn’t matter what your credit is like’

At People’s Pawn in Springfield, Mass., the collection of DVD players, televisions and other electronics just keeps getting bigger.

As many as 200 a people a day come in to “sell all their stuff so they can get gas money,” said Efren Rivera, who works at the shop. “Some people have to pay their mortgages.”

The story is similar at EZ Cash Pawn in West Palm Beach, Fla., where the shelves are so stacked with electronics, musical instruments, guns, fishing poles, scuba gear — you name it — that people are being turned away.

“I have no choice," said Robert DeSantis, the shop’s owner. "I have tools in the warehouse now — every single tool you can think about.”

With the economy in the tank and high energy prices eating away at Americans’ paychecks, pawnshops are prospering.

Unlike the bank, where tough times make it harder to get a loan, “with us, doesn’t matter what your credit is like,” said Todd Faircloth, owner of Georgia Loan and Pawn in Albany, Ga. “You can come in and borrow from us if you’ve got merchandise.”

Sometimes, pawning’s a good option
When you pawn an item, you are really taking out what financial professionals call a “secured non-recourse loan.” Sometimes, according to Jean Chatzky, a financial columnist and author of “Pay It Down: From Debt to Wealth on $10 A Day,” that loan might be your best option to cover an important bill.

Pawnshop loans charge interest, anywhere from 5 percent to 20 percent a month, depending on the merchant’s assessment of the merchandise and the reliability of the customer. At 20 percent, a $75 30-day loan repaid on time would cost the customer $15. By comparison, penalties for bounced checks and late credit card payments average double that.

“Pawning can be a relatively less expensive option,” Chatzky said — but only if you pay back the loan on time. If you don’t, “you’re going to pay another month’s interest,” plus a storage fee, she said.

The National Pawnbrokers Association said 80 percent of customers reclaim their pawned property on time, providing a steady stream of interest income that increases as the economy worsens. With more people being driven in the doors by hard times, it’s a good time to own pawnshops.

The business has become so lucrative that First Cash Financial Services Inc. announced plans this month to shut its auto lending division so it could focus on its pawnbroker operations. The company, which operates more than 250 pawnshops and payday lending shops, said its pawnshop profits rose by 26 percent in the first quarter of the year, topped by a 39 percent rise in the second quarter.

“Our core pawn business is tremendously profitable and continues to grow at record levels,” said Rick Wessel, chief executive of the company, which expects to open 10 to 20 new U.S. stores by the end of the year.

Likewise, Cash America International Inc., which operates more than 500 pawnshops in 21 states under the Cash America Pawn and SuperPawn brands, reported that second-quarter profits rose by 52 percent over the same quarter last year. It projected that profits would rise by another 13 percent to 20 percent over that when it reports third-quarter results later this month.

“Higher loan demand continued our trend of increased revenue from pawn loans, and we experienced better-than-expected retail sales activity during the quarter,” said Daniel Feehan, the company’s president and chief executive.

‘Grills for bills’
Those retail sales are another way pawnbrokers make money.

Loans are typically made for about about half the value of an item. Whenever a customer defaults, the pawnbroker can offer shoppers a bargain while making a profit on the loan.

“Pawnshops have always done consistently very well in a down market,” said Randy Stormberg, owner of Bend Pawn and Trading Co. in Bend, Ore., who said business was up by 30 percent in his store. “They are there with merchandise at about half the price of new.”

Much of that merchandise is gold coins and jewelry. With the price of gold fluctuating between $800 and $900 an ounce, many pawnbrokers won’t even bother to offer a gold item for sale; instead, they will have it melted down for its raw metal, Stormberg said.

Pawnbrokers say they’re getting a lot of unexpected items from people hoping to cash in on the boom in gold.

Fort Myers Estate Jewelry and Pawn in Fort Myers, Fla., hit the headlines earlier this year when it reported that an unidentified athlete had pawned the gold medal he won at the 1980 Olympic Games. And across town at Larry’s Pawn Shop, Ryan Champagne does a brisk business in “grills for bills” — gold teeth.

“When somebody comes in, you don’t want to be handling their teeth. So I grab a paper towel and just weigh it like anything else,” Champagne said.

A couple of years ago, it was unheard of for someone to come in offering his or her gold teeth for sale, but “now, it’s a little more frequent than it was two years ago, there’s no question about that,” said DeSantis of EZ Cash in West Palm Beach.

“I expect to see a lot more — a whole lot more,” he said. “It’s not getting better. It’s getting worse.”

"Hard Times Bring Barter Back into Vogue" (Reuters):

When it comes to being in vogue in Britain, barter is – as they say – the new black.

Rising inflation, a credit squeeze, crumbling stock markets and a slowing economy with job losses looming have prompted an explosion of cyber markets where consumers can get what they want without spending any of their precious and dwindling cash.

Swap shops for everything from clothes to books to toys and games are springing up all over the world wide web – and some have developed their own virtual currencies.

"Our business is going up and up," Jonathan Attwood, director of the SwapitShop.com barter Website for young people, said.

"Last month alone we had more than 40,000 new subscribers, and our members are now trading more than a quarter of a million of pounds worth of goods every month."

Attwood reckons some £5.9 billion ($NZ16.95 billion) are tied up in unused games, music and toys lying around in kids' bedrooms, and through barter sites like his, "savvy kids are unlocking one of Britain's biggest hidden resources."

Adults too, with an estimated 2.4 billion unworn items hanging in wardrobes across Britain, are getting wise to cyber bartering.

As food and fuel price inflation takes ever larger chunks out of tightening family budgets, bartering has swiftly turned from an idea prompted by a desire to be environmentally aware or join the vintage fashion trend, into a basic necessity.

Andy Lenney founded the Bigwardrobe.com clothes swapping site four months ago and admits the "timing could not have been better" with 150 new people a day signing up to trade clothes they no longer want for others' eye-catching cast-offs.

"Clothes swapping is no longer the preserve of the tree huggers, it's cool to be green and recycle, and it's fashionable to be thrifty," he said. "The credit crunch has been a massive help for us."

Attwood, whose site has its own currency "swapits", says a simple shortage of cash is driving his business.

When times are hard, he says, people feel good about using something old to get something new, and with barter there is no guilt about reckless spending.

"Kids are natural traders anyway, and now they are getting less pocket money and their parents are less willing to buy things for them," he said. "Swapping is the natural solution."

Andrew Bathgate, who launched ReadItSwapIt.com for book lovers to trade old for new for nothing, tells a similar tale.

Barely three months ago, his site was seeing steady business of around 7000 book swap requests a month. The number has now shot up 15,000 a month, with a cash-free book swap taking place every three minutes.

"Books can be an expensive hobby. . . and at times of cost cutting people may not have the spare cash," he said.

"We've seen people taking advantage of swapping more and more – not only are more people joining but people are also swapping almost twice as frequently as they were a year ago."

The bartering business is also spreading beyond physical commodities into services and specialist trades.

On the Barter Swap UK website, Fiona, a qualified teacher in Devon, southwest England, is offering tutoring for children up to age 11 in return for someone to lay wooden flooring in her conservatory, while Catherine, also in Devon, is offering the use of a holiday home in Austria to anyone who will transport her furniture there.

Comments

[H.Spencer]

Let me see if I understand this pawnshop thing. You go out and use a Credit Card at 18% or so interest to buy an XBOX360 or DVD Player for an expensive retail price, at say---Best Buy or Circuit City, and then you make the payments on that, and due to your undisciplined lifestyle of finances, you run short of cash, so you go to a pawnshop with the item and get maybe a few bucks on it, plus whatever fees and costs are charged, and after all that you have a time limit to come and reclaim it via paying all the loan back you took on it, and more fees if you are late? Is that the deal? I supose that would be better than one of those so called "payday" loans where you pay the 300% interest on what you borrowed, and still better than the loan where the guy finds you later and breaks your arm. Aside from a few fully understood cash shortages such as Medical Bills, I would ask whose fault it is that loans of this sort need to exhist at all?

[Joe The Plumber]

You'll find the following relevant and intriguing if you're not yet familiar with it. Of course, the informal economy is anathema to the Corporate-Owned shill Economists representing the formal economy, but it doesn't mean it doesn't exist, and it won't become highly influential in the years to come, even for the U.S.

"Researchers began to notice that there was no economic
explanation for how the majority of the population survived. They
didn't own land. They didn't seem to have any assets. According to
conventional economics they should have died of hunger long ago,
but they survived. To understand this, researchers looked at how
these people actually lived, rather than at economic models.

[The peasant's] way of life was completely the opposite of how a
human being in an industrial society survives. They didn't have a
job, pension, steady place to work or regular flow of income...
Their aim was survival rather than the maximisation of profit.

[In the former S.U.] there are no signs of mass hunger and the
services by and large have not collapsed. Considering the chaos of
the formal economy, this is remarkable. Teachers still go to teach
and scientists go to their laboratories even though they may not
have been paid for six months. Under normal economic rules, there
is no explanation for this. Why would they go? The answer is that
their 'jobs' help maintain social and family networks that allow
them to survive outside the collapsed formal economy. They might
grow vegetables in the institute gardens, use laboratory equipment
or run their own small businesses, run taxi services with company
cars or just trade in skills and goods among their fellow workers.
Sociologists can understand this, economists cannot.

We find in the former Soviet economies that while officials are
trying to privatise the economy, most people are living in the
informal economy that is neither communist nor capitalist... [T]he
peasants survived not through socialism, but through the informal
economy."

http://www.mail-archive.com/futurework@scribe.uwaterloo.ca/msg04564.html

A Hitchhiker's guide to the post Financial Armageddon World.

[roger]

nothing much has changed since the days of the Great Gatsby,
same philosophy same results

[Lisa]

They might grow vegetables in the institute gardens, use laboratory equipment or run their own small businesses, run taxi services with company cars or just trade in skills and goods among their fellow workers.

[Lisa]

The business has become so lucrative that First Cash Financial Services Inc. announced plans this month to shut its auto lending division so it could focus on its pawnbroker operations.