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March 09, 2010
THE ROAD TO DEBT SLAVERY
March 02, 2010
TOYOTA IS NUMBER ONE IN CRASH COMPLAINTS
March 01, 2010
THE HUNDREDTH MONKEY
February 25, 2010
CREDIT CARD DEBT WHOSE FAULT IS IT
February 24, 2010
CREDIT CARD RULES CHANGE
Bankruptcy
THE ROAD TO DEBT SLAVERY
Posted by: Darrell Castle
March 09, 2010
If you are one of the millions of people who live in debt slavery chances are that credit cards helped get you there. Do you remember when there were no credit cards? If you do, you were born before 1950. It was that year that Frank McNamara, while having dinner at a New York restaurant, was embarrassed to find that he had no money to pay for his meal. While waiting for his wife to arrive and rescue him with cash, he dreamed up what became Diners Club, and the world hasn't been the same since.
McNamara's invention was predated by Edward Bellamy's 1888 Sci-Fi novel "Looking Backward" which envisioned a world of the future where cash would be replaced by credit cards that would allow people to purchase "whatever he desires, whenever he desires it." In Bellamy's socialist utopia, you never had to pay anyone back for your purchases. That is unfortunately, not the case today unless you are willing to go through bankruptcy. Credit card issuers are quite insistent on being paid back, though they are happy should you take your time in doing so, provided you pay an interest rate that now averages more than 14.7 percent. Almost half of Americans pay only the minimum due each month on their credit card bills. If you're late even by a day, your interest rate increases to over 20 percent.
Paul C. Wright, in an article for Global Research entitled "Looming Crises: America's Credit Card Bubble Burst" points out that America used to be a nation of savers. Saving money used to be valued as a prudent exercise. The conventional wisdom was to set aside 10 percent of your income as savings for emergencies. Before the credit culture, Americans put large portions of their income in the bank to fund their children's college education, take vacations and for retirement. When they had to pay for something they paid with cash. If credit was required, it was in the form of installment loans, not revolving credit. Now cash is out of fashion and credit is king. In 2005, 164 million American credit card holders charged $2 trillion to their credit cards which amounts to $12,500 for each card holder. By 2008, consumer debt increased by seven times, while the savings rate was seven times lower than in 1980.
Credit card companies used to make their money by charging fees for the use of the cards. They eventually hit on the idea of charging interest on the outstanding debt in a revolving fashion. The combination of annual fees and compounding interest led to the rise of companies like Visa and Mastercard. Credit became a trap in which Americans maintained their standard of living which was being eaten by inflation, through the use of credit. When credit collapsed in the fall of 2008, the house of cards started to fall.
Don't stay in bondage to debt for the rest of your life. Get out now before it's too late.
THE HUNDREDTH MONKEY
Posted by: Darrell Castle
March 01, 2010
The hundredth monkey effect is a legendary, or mythical depending on your point of view, phenomenon in which a learned behavior spreads instantaneously from one in a group, to the whole group, and then to all other groups. It comes from scientific experiments in the 1970's in which monkeys were studied after some were taught to wash sweet potatoes and the learned knowledge spread through that group and even to other groups with which the original group of monkeys apparently had no contact. The theory then is that there is an unknown number and when that number which represents a certain level of behavior within a given population is reached, the behavior will spread throughout the population. I'm going to speculate in this article as to whether that theory has any application to human behavior.
There have been two recent examples of violent behavior which allow us to question whether or not such behavior, or at least attitude, may be starting to become more generally accepted in our society. The first example is Joseph Stack from Austin, Texas. Mr. Stack, after years of fighting the IRS, which he believed to have gratuitously ruined him, flew his private airplane into a building in Austin which housed about 200 IRS employees. Mr. Stack can be separated from those deranged people who randomly shoot others in post offices, schools, and the like by the fact that he left a note outlining his reasons and intentions. From his note we can conclude that he reached a level of frustration with the IRS that can be termed the "I can't take this anymore" level. In his suicide note he stated "Violence not only is the answer, it is the only answer." His conclusion was that nothing short of violence would get the attention of a government that he felt had turned its back on the American people.
Our second example is Terry Hoskins from Moscow, Ohio. Mr. Hoskins owned a home worth $350,000 against which he had a $160,000 mortgage with River Hills Bank, and he owned a carpet business which had been experiencing losses since the recession. He struggled for months to keep up payments on his home but eventually fell behind and the bank started foreclosure proceedings. Reportedly, he was able to find financing to pay off the loan but the bank knew that it could realize more from the foreclosure sale and so it announced that it would proceed with the foreclosure. Mr. Hoskins set fire to his carpet store and leveled his home with a bulldozer. River Hills Bank now owns a pile of rubble sitting in the snow. The bank has yet to comment on what it intends to do. A local TV station took a poll and 79 percent of those responding agreed with what Mr. Hoskins did.
The capacity to inflict violence and even to conduct warfare has changed in our society. A few years ago warfare was only conducted by large standing armies but now everyone is empowered by technology. Most are capable of learning to fly an airplane and buying or renting one. Most are capable of learning to operate a bulldozer and renting one. As our society unravels and people feel more and more powerless to control their lives, an angry inchoate rage creeps into their lives. The type of behavior exhibited by Mr. Stack and Mr. Hoskins is becoming increasingly more common and more predictable. When individuals conclude they have been pushed too far, many will fight back. Could we be nearing the tipping point of major social upheaval? Who will be the hundredth monkey? Time will tell.
Don't let this happen to you. Take steps now to protect yourself and start by getting out of debt.
CREDIT CARD DEBT WHOSE FAULT IS IT
Posted by: Darrell Castle
February 25, 2010
We've heard a lot about credit cards lately especially with the new rules for card companies going into effect in the last few days. The new rules assume that there is something at least suspicious about credit card debt and the way that debt is collected. I see credit card debt everyday in my office and I know that it can and often does get out of hand and cause damage to people. Why then has it become so pervasive in our society? Why is it a rare individual who does not have any credit card debt from which he is recovering? We have an article from Todd M. Schoenberger of Tiapan Publishing Group's Tipping Point to enlighten us.
"For those stuck in the quicksand of debt, then you know that it is literally impossible to ever get ahead inyour financial life if all you're doing is paying back creditors." Wow, that is a great stand alone statement and very true but Mr. Schoenberger has more. "You've always heard stories about the amount of debt carried by Americans, but the epidemic really came into focus as the housing bubble burst and the U.S. economic system crumbled. Peopled seemed more than willing to remove equity from their homes to pay off credit cards and ignore every cautious sign about the risks they were taking." What cautious signs Mr. Schoenberger? I don't remember the stop sign ever being given, instead it was always go. He continues his analysis. "Once that equity started evaporating, credit card holders saddled with piles of debt, realized they were in trouble and had little chance of recovering. So, realizing this, consumers either filed for bankruptcy or decided to do what seems to be socially acceptable these days in the U.S.: Complain to their local congressional leader and say they are being "ripped off."
Credit card holders realized they were in trouble and had little chance of recovering. Well then, what should they do continue as debt slaves for the rest of their lives? I've counseled thousands of clients about debt and I've yet to have one complain to a congressional representative. How dare they become as impudent as to attempt to cast off their chains? If that were all from Mr. Schoenberger it would be plenty, but there's more. "Now, before I go any further, I have to say that I agree the credit card game is a losing proposition for the consumer. There is no doubt that charging loan-shark like rates to borrowers with little care about how it impacts their lives, is just as damaging to the overall economy as it is to the individual. However, the problems consumers face with credit card companies are completely self made. The banks did not tell the card holders that they needed to take the card, all they did was offer creative marketing with promises of "points, lavish vacations, and a lifestyle that was sure to make your sibling and neighbor super jealous. And the consumer fell for it."
That statement is so untrue, absurd, and ridiculous that it begs a response. He admits that card companies are loan sharks, and they have slick marketing to "market" their cards, and he further admits that their unbridled greed damaged both the individual card holders and the overall economy. He then goes on to lay the whole sordid mess at the foot of the "consumers" because they "fell for it." If an ordinary con man did to individuals what card companies do, it would probably constitute a crime. What then is at the root of all this debt?
In August of 1971, in an attempt to pay for the war on poverty welfare programs and the Vietnam War at the same time, President Nixon took the dollar off the gold standard and let it float without any anchor of value. He did that to inflate the currency and pay debts with cheaper money thus robbing bond holders or at least imposing an unseen tax on them. Since August of 1971, the standard of living of American working people has steadily declined relative to inflation. Each year wages do not increase enough to cover inflation and that dictates a lower and lower standard of living. The government has the same problem of course, and it solves that problem with debt. The government is our example and we follow it quite well. Credit allows us to not only keep the same lifestyle but to expand it. That is until the final day of reckoning comes and there is no more credit. No more home equity as collateral and no more refinancing resulted from the housing crash of September 2008. The large robber banks were bailed out using the labor of their victims, and then the victims were told that it was their entire fault.
Don't fall for it anymore. Make a commitment to stop using credit and live within your means no matter what that is. Hard times are here and will get worse so make preparations for stormy weather. Get out of debt right now by the best means you have available, and live a free life.
CREDIT CARD RULES CHANGE
Posted by: Darrell Castle
February 24, 2010
The following is a brief summary of credit card rules changes as modified by the new law taking effect immediately, and as reported by the Memphis Commercial Appeal: 1. Interest rates can't be raised in the first year unless an introductory rate has come to an end. After that, cardholders must be notified 45 days in advance of any rate change. 2. For existing balances, rates can't be raised unless the account is at least 60 days past due. 3. Agreements will be clarified so cardholders can see how long it will take to pay off a balance if only minimum payments are made. 4. Service fees, such as activation and annual fees will be capped at 25 percent of the credit limit during the first year of use. After that, there is no cap. 5. Statements must be sent out 21 days before the payment due date. 6. Due dates will remain constant. 7. Credit cards may no longer be issued to anyone under age 21, unless the applicant has a co-signer or can show independent means to pay the debt.
Credit card companies had nine months to prepare for the new law and took steps to protect themselves. They raised interest rates, created new fees, cut credit lines, and closed millions of accounts. The new law does protect credit card holders in the ways previously mentioned, but it also impacts people in ways some may consider negative. It has helped make it more difficult for millions of people to get credit and has made credit more expensive. About 40% of banks cut credit lines on existing accounts which eliminated about $1 trillion of existing unused credit according to Tower Group Consultants. Credit lines were most frequently cut in places most severely affected by high unemployment and declining housing values. The law makes credit less profitable so some less than prime credit risks may not be able to get credit at all for a few years. Card marketing on college campuses is strictly limited and students must show independent means to repay. I guess Congress wanted college students indebted only to the U.S. Government for the rest of their lives instead of credit card companies as well.
Hard times are here and times will get worse for many. Make a commitment to live the rest of your life free of debt. Do it right now before it's too late.
RISING GASOLINE PRICES DRIVE INFLATION
Posted by: Darrell Castle
February 18, 2010
The New York Times, in an article entitled "Energy Costs Push up Producer Prices," reports today on last week's inflation numbers as measured by the Producer Price Index (PPI). I will endeavor now to translate the Times article.
"Producer prices in the United States increased 1.4 percent in January outpacing expectations of a 0.8 percent jump-mostly because of an increase in gasoline prices. Excluding volatile food and energy costs, the increase was 0.3 percent compared with a forecast of 0.1 percent."
Translation: Prices went up in January much higher than expected but if the two things people must have to live, food and fuel, are excluded, the increase was not as high.
"On Thursday, a separate report showed the number of people filing first time unemployment claims last week was much higher than expected-to 473,000, up 31,000 from the previous week. That increase rekindled worries that the labor market would be slow to bounce back, even though it has gradually improved in recent months."
Translation: Unemployment is increasing despite government efforts to inflate it away with printed money and this is an unusual situation that the government economists don't understand because they only know one point of view, i.e. the government point of view. That is the only point of view taught in their Ivy League economics departments.
"Economists were also debating the effect of recent East Coast snowstorms on the weekly jobless report. Some said it probably meant fewer people were able to file unemployment claims because government offices were closed; others said it likely had a limited effect because many people file claims via the internet."
Translation: Some government economists thought the recent bad weather made unemployment higher but some disagreed. Is that all these PHDs in economics from Harvard, Yale, and the London School of Economics have to do? Don't you have to be smart to be a Rhodes Scholar?
Conclusion: Inflation will make everything cost more especially food and fuel. If something isn't done quickly to bring down government debt and slow the increase in printed money we will be fortunate if we don't all starve because we won't be able to afford bread. Get out of debt folks, before it's too late.
FORECLOSURES STILL RISING
Posted by: Darrell Castle
February 11, 2010
Foreclosure filings rose 15% in January from a year earlier and exceeded 300,000 for the 11th consecutive month as modification programs failed according to RealtyTrac, Inc. A total of 315,715 properties received a notice of default, auction or bank seizure last month, or one in 409 households.
Comment: Unemployment and negative equity, where home owners owe more than their properties are worth, are adding to the total, said the chief economist at Zillow.com. More than a fifth of U.S. home owners had negative equity in the 4th quarter of 2009. Translation: If you are out of work and have less than no equity, you can't make your house payments when due. Comment: About 8.4 million jobs have been lost since the recession began in December 2007, with more than 4 million cut since Obama took office in January 2009. Translation: Work has gone straight to hell in a hand basket and has gotten worse since Obama's modification programs started. Comment: Nevada had the highest foreclosure rate for the 37th straight month, with one in 95 households receiving a filing in January. Translation: Nevada, once a glamour spot, is now the worst hellhole in the country. Comment: Las Vegas had the highest foreclosure rate for cities with a population of more than 200,000 with one in 82 households getting a filing. Translation: Las Vegas is the worst hellhole of any city in the country.
Things are bad and getting worse. Get out of debt as soon as possible.
PAIN REMAINS AFTER UNEMPLOYMENT
Posted by: Darrell Castle
February 08, 2010
This startling news can be found in a front page article in the New York Times Saturday February 6, 2010. I know that you are all as shocked as I was to learn that finding a job after months or even years of unemployment often leaves lingering problems. The consequences of unemployment continue to ripple through the lives of many who have returned to work. Some are forced to declare bankruptcy, many return to lower paying jobs and must find the discipline to live a different lifestyle. Many live with the anxiety of knowing that the rug could be pulled out again at any moment.
Some people are left with a massive amount of past due bills including mortgage payments which they will struggle with for many years. Sometimes the changes are of a positive nature such as a commitment to live a more frugal life or a commitment to quit drinking. Often there is a determination to set money aside for hard times which could come again at any moment. Children who observe their parents' struggles with unemployment after working most of their lives are left with a sense of unease about the future. Many are determined to study harder to get a scholarship because they know their parents might not be able to help them.
Some couples have trouble dealing with the stress and pressure on their marriages and many marriages end in divorce. Especially for those left with custody of small children, the decision to divorce sometimes leads to a life of irreversible poverty. According to the Times articles, attitudes about work are often changed by the experience. ""Mrs. Newby's attitude toward work has shifted, driven in part by her Christian faith. In an all consuming advertising career, she is now less inclined to throw herself completely into it. " I gave so much of my life, so much of my energy and time to serving this company and clients and for what?" she said, "Where did it get me?"
Well sister, it does sound like you finally have it figured out, but weren't you really after money, fame, power, self satisfaction, recognition or whatever? Didn't you find that you received those things from your work until your company was forced to cut back? Perhaps you found that those things are all liars and do not deliver the promises they make to us. Since you have it straight now, get out of debt and live a free person's life.
JOB SEARCH TACTICS
Posted by: Darrell Castle
February 04, 2010
According to a February 3, 2010 article in the Denver Post, many people are unemployed because they use the wrong tactics in seeking employment. People are unemployed longer than before and therefore they are competing for jobs with yesterday's job search skills the article said. The collapse in the Nation's economy has left so many people unemployed that it is now a buyers' market and the employers are screening much more stringently than before. If a company laid off 500 or 1000 employees, that company will probably hire back only 200-300 and the burden is now on the candidates. What worked before is not working now.
On average women remain unemployed three to five months and 80% of men for at least a year. Some of these people have great backgrounds and are finalists for 6 or 8 jobs. "The successful candidate is the one who builds value, with a strategy on the hiring company. Fewer than 10% of all jobs are gotten via job boards, yet better than 80% of job seekers focus their efforts there, studies show." Translation: Employers do not care about you no matter how grand sounding the propaganda from their Human Resources Departments. Doesn't the term human resources say it all? You are a resource and that's just the way it is in the work world. Employers have to keep an eye on the bottom line if they are to survive and potential employees need to be prepared to let the employer know what value they will add to the company. In other words, you can't afford not to hire me and here's why.
Many people are unaccustomed to selling themselves but in order to find work today, you had better not be one of them. Every person is a business person but few know it. Each worker has a commodity to sell-his or her labor. The employer is a reseller of that commodity. He buys the labor at one price and hopefully resells it for a higher price. The employee, therefore, must know the value of the commodity and become a very good sales person in order to remain or become employed. Show the potential employer why hiring you will be profitable for him. Survival doesn't allow him to run his business based on how badly his employees need work. He must instead hire people who will be profitable for him.
My advice: Become a personal marketer and, by any means necessary, get out of debt.
WHEN BANKS SAY NO
Posted by: Darrell Castle
February 01, 2010
According to an article in the business section of the New York Times, Sunday January 31, 2010, when small businesses and entrepreneurs lose their source of bank credit, they must go to unconventional lenders or close their doors. A great deal of employment in the U.S. is provided by small business and when financing for day to day operations is not there, many jobs are lost.
Often small businesses need what they refer to as purchase order financing. In the case described in the Times article mentioned above, a small business in New York had a solid order contract for one million dollars of business and needed a one million dollar loan to purchase that inventory. Today, most businesses are purchase order in that they purchase inventory in China or some other country, perhaps do some final assembly, and resell it for a profit. In the case presented, the business, by contract, would purchase one million dollars of inventory and resell it for one and a half million dollars. The business owner went to his old bank, Chase, which had always financed him before, but Chase said no and so did all the other large banks he approached.
Individuals face this same dilemma today. When denied credit to financially survive, what do they do? Often, individuals turn to unconventional sources such as pay day loans and title loans which provide short term financing usually at extremely high rates of interest. This type of financing is impractical for business but there are private lenders who specialize in short term, purchase order financing. The business owner borrows the money to make his purchase and repays it from his profit. If his can't miss product misses, he is stuck and so is the lender. I will add that all his employees are also stuck looking for jobs.
Contained in the new federal budget just out this morning, is a proposal for one hundred billion dollars to aid small business. I wonder what happened to the seven hundred billion dollars already pumped into banks to aid business lending. I wonder, but the Federal Reserve won't tell us because it's a secret. How presumptuous of us to question what happened to our money. Perhaps this time the banks actually will loan the money.
When individuals reach the point of needing pay day or title loans, it is quite often too late to financially recover. The high interest loan simply starts an unstoppable chain of events that leads inevitably to bankruptcy. It is usually better to deal with the problem instead of following the government example of search and avoid the problem. More trouble is on the way so get out of debt as quickly as possible.
INFLATION HURTS RETIRED PEOPLE THE MOST
Posted by: Darrell Castle
January 29, 2010
Inflation can be defined as an increase in the quantity of money and debt within an economy. Inflation is specifically not an increase in prices within an economy. Price increase within an economy is a consequence of inflation not the cause.
Governments then, in our modern central bank run economies, are responsible for inflation because of their constant increases in the money supply through the central banks. In the U.S., the central bank is the Federal Reserve. Inflation is a hidden or stealth tax imposed on the public without their knowledge or consent. Inflation serves to steal the savings and transfer the wealth of people to the government.
Retired people, usually on fixed or limited incomes, are hurt the most by inflation because their income cannot keep up with the constant rise in prices and therefore their standard of living constantly falls. Due to inflation, the real standard of living in America has been falling since about 1971. This is true because people are falling further and further behind the ever increasing rate of inflation. For example: If you had ten loaves of bread which cost two dollars each for a total cost of twenty dollars and you double the money supply then each loaf would increase in price to four dollars because there would be twice as much money available and it is therefore worth half as much. The more you make of something the less it is worth. The bread is the same bread but it costs twice as much and the retired person with the same income must pay twice as much for it.
Inflation serves the constant need of government to buy more than it can legitimately pay for because a real tax increase may not be possible. The over spending and over production of money comes at the expense of people who cannot keep up and constantly must borrow to maintain their standard of living. Inflation and the need to borrow to keep up also explain, at least in part, our current recession. Credit collapsed and with the collapse of credit came an end to borrowing and an end to people's ability to keep up with the rate of inflation by going further and further into debt. At the same time, businesses started to fail because credit was no longer available to them. This credit collapse resulted in lost jobs and declining tax revenue which resulted in even more inflation.
To reduce your own exposure to a system over which you no longer have any control, get out of debt as quickly as possible.
UNEMPLOYED YOUNG AMERICANS
Posted by: Darrell Castle
January 27, 2010
The U.S. economic recession has taken a heavy toll on young Americans according to Reuters.com. There are record numbers of black men aged 20 to 24 neither working or in school. Teenagers have found it very difficult to find jobs. About 68 percent of black teenagers are currently unemployed. Teenagers often use part time jobs as a way to pay for school and as a spring board to future full time employment and those jobs are rapidly disappearing from the job market. U.S. Census Bureau data show that only 26 percent of teenagers aged 16 to 19 were employed in 2009 an all time low. Those figures do not include those young people in prison.
The prospects for young people today are grim whether they are black, white, Hispanic or something else and whether they are poor, low income workers or Ivy League educated. This has been widely reported in newspapers such as the New York Times which carried a feature article in the Sunday, January 24, 2010 edition about young lawyers in New York and other cities having to lower their expectations. Young people have always been told to "live your dreams" and to "go for it" or "be all you can be" but today military service is available, but not much else.
America needs to deleverage and clean out its debt both public and private in order to allow the economy to rebuild and get people back to work. Further, in today's times of struggle, the minimum wage laws, which are intended to raise people to a living wage instead do the opposite. The employment rate is hurt by employers' inability to hire at market rates thus destroying lower paying and part time jobs. We should take a hard look at what all this is doing to us as a society and soon or the destruction will get much worse.
Don't wait for the government, whether federal or state level, to do the right thing. Get out of debt as quickly as possible.
RETAIL CREDIT CARD DEFAULTS AT RECORD LEVELS
Posted by: Darrell Castle
January 22, 2010
Fitch's December Retail Credit Card Index results show that more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis. Fitch expects retail credit card defaults to continue elevated through the first half of 2010. "We do not foresee any meaningful improvement in the retail card credit quality in the coming months," said Managing Director Michael Dean. U.S. consumers are under pressure from many sources the most important of which is rising unemployment, and default rates reflect those pressures. Translation: people can't pay their credit card bills if they don't have jobs.
"Rising unemployment rates and intentional household deleveraging of debt will limit demand for credit in the near future. Consumer confidence remains low and again reflects the unemployment rate."Translation: people are out of work and don't want more debt, and being out of work and broke makes them pessimistic. "Households will remain cautious with their spending and further curtail their use of retail cards in 2010," Dean Said. Translation: people have finally stopped spending money they don't have on things they don't need.
"The latest Fed figures show revolving credit usage decreased at an annual rate of 18.5% in November-the largest dollar value drop since 1968 and the 14th consecutive decline since October 2008. As long as the employment and income growth remain weak, demand for consumer credit, especially retail credit, will be limited." Translation: the credit created debt based economy is as dead as fried chicken and Dr. Frankenstein will not revive it until people go back to work.
Get out of debt as quickly as possible.
DO WE HAVE A MORAL OBLIGATION TO PAY A MORTGAGE
Posted by: Darrell Castle
January 15, 2010
Does the mortgage on your home come with a moral obligation to pay, or is it acceptable to just walk away? Mortgage lenders today are going to extraordinary lengths to keep people in their homes and prevent mortgage defaults. Quite often people are expected to believe that this represents some type of philanthropy or new found generosity on the part of the mortgage industry but close examination reveals otherwise. When times were good and the value of homes was constantly rising, lenders were quick to foreclose. The attitude was basically, pay up or get out. Now that times are bad and home values are falling and many homes are worth less than the mortgage, lenders are more generous. Perhaps the industry is growing tired of foreclosing on mortgages that exceed the value of the collateral.
The fact is that a mortgage between borrower and lender, in the vast majority of cases, is a simple business decision and nothing more. The lender examines the property, gets an appraisal, looks at the borrower's financials and decides to make the loan taking the property as collateral. The borrower finds a home, does his due diligence, and applies for the loan. When the loan is made, the deal is simply; you pay the mortgage or I will foreclose, take the home, and sell it to someone else. Most of the time, that's all there is to it.
Sometimes both parties make bad decisions. The lender lends into a declining market for real estate and his collateral is worth less than the loan balance when the borrower defaults. The borrower has the same problem in that his home cannot be sold because its value has fallen below what he owes. That's the deal folks, and that's all there is to it. If you do not pay the mortgage the lender takes the collateral. There's nothing more to it than that.
Times are difficult and getting worse. Get out of debt as quickly as possible.
CONSUMERS ARE DONE WITH CONSUMING
Posted by: Darrell Castle
January 14, 2010
The Webster's Dictionary definition of consume is; to reduce to nothing; to burn up; to squander; to waste away slowly; to be exhausted. The December 2009 retail sales figures as reported by the Associated Press tell us that the American people are through, or at least a bit tired of consuming. Hopefully, we are also tired of being referred to as "consumers." In order for the American economy to recover, we the American "consumers" must go back to squandering money that we don't have and we seem rather hesitant to do that. "Consumer spending is considered critical to any sustained economic revival since consumer spending accounts for 70 percent of total economic activity." Did you hear that? The American economy is 70 percent dependent on whether or not we are willing to return to a lifestyle of squandering money we don't have and will never earn? I must point out that people and nations do not become wealthy by consuming, they become wealthy by producing and by saving.
"Retail sales fell in December as demand for autos, clothing and appliances all slipped, a disappointing finish to a year in which sales had the largest drop on record. The weakness in consumer demand highlighted the formidable hurdles facing the economy as it struggles to recover from the deepest recession in seven decades. " For December, sales of autos dropped by 0.8 percent, specialty clothing 0.6 percent, big retailers such as Wal-Mart 0.8 percent, electronics and appliances 2.6 percent, and hardware 0.4 percent.
Well, people can't or won't "consume" all the foreign merchandise being shipped to America if they don't have jobs and jobs are harder to come by these days than retail sales. "In the jobs report, the Labor Department said new claims for unemployment insurance rose by 11,000 to a seasonally adjusted 444,000. Wall Street economists polled by Thomson Reuters expected an increase of only 3,000." New claims for unemployment insurance are considered a gauge of employers' willingness to hire new workers. The conclusion then is that not many people will hire workers to sell imported things that few people have the money or inclination to buy and therefore, this consumer based economy is in serious trouble.
I hear the government is working on a new economic stimulus for this year so I guess since we "consumers" aren't squandering our money fast enough; the government must step in and squander it for us. My advice: get out of debt as quickly as possible.
RECESSION OR DEPRESSION
Posted by: Darrell Castle
January 13, 2010
There is an old adage that goes something like this; when your neighbor is out of work, that's a recession; when you are out of work, that's a depression. Many things are happening in the economy right now as a result of the decades long build up of debt both public and private. Robert Farrell who was a market strategist with Merrill Lynch before he retired used to list what he called his 10 market rules to remember. Number two was that excesses in one direction will lead to opposite excesses in the other direction. The excess of credit and the debt based economy that has been present for many years will result in excess in the other direction to bring the market back to the mean, or average, so it can grow again. Now frugality is popular again. People are saving not borrowing. The other old adage is something like this; he who goes borrowing goes sorrowing. The book of Proverbs tells us that the borrower becomes the slave of the lender. People find themselves nervous and fearful of what's ahead for them economically. The economy will have to deleverage or get rid of the excess debt before people can be expected to engage in credit and reignite another debt based economic boom. When a nation's economy is based on credit and debt, false signals are sent to the market causing it to react in false ways. People buy on credit as if they had real money and each buy is a market signal to build more stuff for which there is no real market. Factories are built and workers are hired to produce goods for which there is no real market. When credit contracts, either intentionally by bank action or naturally through market forces, the whole thing comes crashing down. The federal government, in its view, cannot let that happen because it would mean a deflationary depression and the politicians would be punished in the elections. Their tactic then is to build the house of cards ever bigger hoping that someone else will have to deal with it. The bigger the house of cards gets, the bigger the mess when it falls. This contraction of credit and resulting crash is what happened in the fall of 2008 and the government has been resisting the crash since then. The means of resistance include pumping printed money into the economy, bailing out one segment or another of the economy, taking control of industries and stimulus by pumping money into projects.
One wonders if borrowing more money will ever be a successful cure for a problem caused by too much borrowing. One also wonders if this "recession" will be solved and the economy boom again, or will it dissolve into full blown depression. Time will tell but in any event, get out of debt as soon as possible.
VISA DEBIT: SHOULD YOU SIGN OR NOT
Posted by: Darrell Castle
January 08, 2010
The January 5, 2010 edition of the New York Times, in an article entitled "How Visa, Using Card Fees, Dominates a Market," covered a story that is very familiar to anyone who uses a debit card instead of checks or a credit card. When you make your purchase, the merchant asks whether you want to put in your PIN code or sign your name and sometimes he simply asks,debit or credit. It seems like a pointless decision for most people and some will say "I don't care, whatever is easiest for you" or "it doesn't matter to me." However, behind the scenes billions of dollars are at stake.
When a customer signs a debit card at a retailer, the merchant pays your debit card bank on the average of 75 cents for every $100 you spent, which is more than twice as much as when you punch in your PIN. The difference nationwide is so huge that Costco will not allow customers to sign debit cards at the checkout lines and Wal-mart and Home Depot try to steer customers to use their PIN.
The competition between card companies like Visa and MasterCard usually centers around how many banks they can get to issue their cards. These card companies then set the fees that merchants must pay to the cardholder's bank. Higher fees, of course, mean higher profits for the banks which means higher prices across the board because merchants pass the bank fees on to customers. Since it is to the bank's advantage for the card companies to charge more to the merchant, the charges keep going higher because of competition between Visa and MasterCard. The competition is good for banks but bad for merchants and their customers. Merchants say that they cannot refuse higher fees because lost card rights would kill sales.
Visa no longer provides credit for customers to buy merchandise. The credit is provided by the banks which issue the cards. The banks used to own Visa until it went public in 2008 and now Visa simply acts as an electronic processing center for the transactions between merchants and banks. The fee that goes to Visa averages 5 or 6 cents per transaction. That may seem like a small fee but the National Retail Federation said that the transaction fees cost households an average of $427 per year.
The U.S. Justice Department is currently investigating the rules imposed on merchants and lawsuits have been filed by merchant groups against card companies seeking relief from the fee setting system. Several bills have, of course, been introduced in Congress seeking relief for merchants.
NOTHING BUT FOOD STAMPS
Posted by: Darrell Castle
January 06, 2010
The New York Times as reported in a front page story in the Sunday, January 3, 2010 edition has discovered that there are a lot of really poor people out there in America and that list is growing every day. "Food stamp use is at a record high and surging by the day." The fastest growing subgroup consists of about six million people who have no income at all except food stamps. This information is revealed in federal audits; that they are unemployed and receiving no cash aid, no welfare, no unemployment insurance, no pension, no child support or disability pay.
People cope with this situation the best that they can according to the Times. Some are displaced strivers, some sleep in homeless shelters, some have under the table jobs, some live with relatives, and some get non-cash help like rent subsidized apartments. Many people use food stamps only for brief periods of time between jobs and others subsist on food stamps for many months. One in eight Americans now receives food stamps and one in four children. This is an outrageous situation that is simply not justifiable in this country. There is no excuse for it whatsoever and it should be addressed immediately. Poverty, misery, and despair spread across the land while we squander our resources and the fruits of our labor bailing out banks and Wall Street. Good paying jobs could return to America and we could start making things that people want to buy once again. To pull out of this economic death spin we will have to concentrate on making things not buying things. Production is not consuming things it is making things. Should we as a people persist in this "jobless recovery" we will soon run out of foreign credit to pay for the relief people need to keep from starving. These things taken together indicate that we have abandoned the moral authority to lead.
Well, times are hard for people with millions living on nothing but food stamps and growing more and more dependent on government each day and there is no end in sight. Jobs are not safe in the future no matter how safe they may look today. Make plans to survive for periods when you have no work. Get out of debt as quickly as possible.
BANKRUPTCY FILINGS UP 32 PERCENT IN 2009
Posted by: Darrell Castle
January 05, 2010
From the Wall Street Journal of Tuesday January 5, 2010 we learn that bankruptcy filings were up by nearly a third in 2009. Significantly, Chapter 7 filings were much higher. That is very significant because the 2005 changes to the bankruptcy laws were designed to force people to choose chapter 13 repayment plans over chapter 7 discharge. This is obviously being driven by the declining economy and the resultant increase in unemployment and the decline in residential housing values. Chapter 7 filings were up 42 percent through November 2009 and chapter 13 filings were up 12 percent. Chapter 13 filings made up less than a third of 2009 filings.
This all taken together indicates that the 2005 bankruptcy law changes have been a failure according to Ronald Mann, a law professor at Columbia University. The Post reported that professor Mann stated, "I don't think anybody who's knowledgeable about the bankruptcy system thought the statute was well crafted."
The demographics of Bankruptcy also seem to be changing. The Institute for Financial Literacy reports that more people with high income and high education levels are resorting to bankruptcy than ever. My response is that rather than say these people are "resorting" to bankruptcy why not report accurately and say that they are left with no option other than bankruptcy after losing their jobs and homes. Expenses that were reasonable and affordable when fully employed become unsustainable with job loss.
The one third increase in bankruptcy filings reflect the declining American economy but they mean much more than that. They mean that Americans are not optimistic about the future. People cannot meet their debt service obligations without full employment and very few expect a return to full employment in the immediate future.
DIG YOURSELF A HOLE
Posted by: Darrell Castle
December 30, 2009
You have good credit when you get yourself in debt on purpose and then make payments on time every time and then you do it over and over again. Should you fail to make payments on time every time, you will have bad credit. When you continue to pile debt on top of debt, whether your credit is good or bad, you are digging yourself a hole and eventually you will pull the dirt in on top of yourself because you will not be able to repay the debt on time. The first time something bad happens such as a lost job or unexpected illness you are at the bank begging for mercy. You seek mercy in the form of loan re-structuring or Obama mortgage mitigation but you find no mercy.
People dig holes for themselves when they become more concerned about good credit than getting out of debt. A fixation on good credit or repair of a bad credit score is an indication of future trouble. Credit trouble should serve as a warning to people that credit is not always a good thing. In today's economic environment where unemployment is rising and foreclosures are common, if you can't pay cash or at least pay within the month, you don't need it.
Extending credit to so called sub-prime borrowers and other poor credit risks was big business before the collapse in residential housing prices. The borrower could be charged a higher interest rate and when he defaulted the house could be quickly taken and sold for a profit. Now mortgage lenders seem to be in a panic but I suspect it is because foreclosures are not so profitable anymore and not out of a since of mercy for borrowers.
To survive in this economy, forget about credit reports and whether they are good or bad. Get out of debt as fast as possible and stay out of debt. Consider advice from an experienced professional such as those at Darrell Castle and Associates. There is no charge for the consultation.
PAYDAY LOANS
Posted by: Darrell Castle
December 28, 2009
A payday loan is a small, usually $50 to $500 short term loan with a high rate of interest. There is a reason why the Federal Trade Commission calls payday loans "costly cash." According to a recent FTC consumer alert, if you borrow $100 for two weeks at a cost of $15, the actual annual percentage rate is 391 percent. If you keep rolling over the loan every time it is due at a cost of $15 each time, instead of paying it back, you will soon owe much more than the original debt despite having paid $15 every two weeks.
There are many reasons why someone would get a payday loan despite the obvious rate of interest? Many people do not understand how interest rates work and $15 seems like a small price to pay for an immediate $100 which may be desperately needed. Some people have such bad credit and have so many IOU's out to relatives that they don't have access to traditional credit. The loan is discreet and can even be hidden from a spouse. In short, it is a fast, easy, and discreet source of cash.
I, like most bankruptcy attorneys, have extensive experience with payday loans. It is quite common for bankruptcy clients to have a long list of payday loans outstanding, and sometimes those loans are the force behind the need for bankruptcy. If you are considering a payday loan or you have a payday loan outstanding, that is an indication that your financial life is seriously out of order. It means that you have no savings, that you live paycheck to paycheck, that you have no relatives or friends that you can borrow from, and that you have a need that at least occasionally requires you to spend more than you earn.
If the above description fits you, consider the services of an experienced professional such as the ones at Darrell Castle and Associates. There is no charge for a consultation to evaluation your financial condition.
