Prime Rate Credit

Counter to what you might think in this weakened economy and the wave of tighter lending standards for almost any type of lending, including home mortgage loans, equity loans, lines of credit, credit cards, auto loans and general loans including business loans, consumers are spending more money on credit cards than you’d think. So, is this a good thing, or no?

Well, in my opnion, probably no, because this excess spending on credit cards is probably a reason why we are in the position we are in today, and if people are putting their normal expenses on credit cards, such as gas, food and necessities, then this means they are putting things on credit cards and then only making the minimum payments on them, which means they could end up paying over ten times more than what the items they originally purchased are worth when it’s all said and done unless they can consolidate and pay it all off or accelerate their payoff quicker when they have more money to work with.

The results of surveys and various other counting measures are showing that consumer credit card spending is up, with other numbers on their way down, so this is a slightly disturbing happening since many of them report also that they can only afford to make the minimum payments on the revolving debt, and this means that they are being charged anywhere from 15 to 25 percent or more on their purchases, and this is putting them further behind the eight ball, so to speak.

Some households are reporting that their monthly or biweekly income is not covering their heightened expenses, what with energy costs skyrocketing and gas prices going up higher than ever, as well as the cost of food and general cost of living going up since gasoline is used in almost every line of business for transport, and this is having a domino effect on the price of all consumer goods.

Is this finally the energy crisis that so many analysts have been saying we will eventually have? Will this force us all to purchase hybrid vehicles in the near future? Well, who knows, I wish I could see into a crystal ball.

One thing I can tell you is that using a credit card for normal every day expenses is what got me knee deep in debt in college, and took me years to finally pay off, negotiating lower rates with the credit card companies and using good, old fashioned discipline to get myself out of the strangling debt. It never felt so good! Credit cards are definitely good for many reasons, it’s just in cases where we use them to actually live on and pay expenses where we normally wouldn’t when we start to get ourselves in over our heads.

In yet more ominous news about today’s economic situation, both microeconomically and macroeconomically for those who enjoy referring back to old highschool and college terms, unlike me, foor prices are being forecasted to go higher than they have in more than 17 years, and they are saying that right now is just the beginning.

What are the higher food prices attributed to? Well, it is supposedly a combination of factors, a few being the weather in major food, wheat and corn producing areas of the world, high gas prices which increases the cost of transporting food to places that sell it and use it in their food products, and a higher global demand for food stuffs.

The average annual food cost increase is usually at about a 2.5 percent increase, while last year (2007), it rose around 4 percent, setting the path for higher and higher prices according to many analysts and consumer watchdog groups. This year, they are saying that the rise in food prices could be even worse than last year, and additional half a percentage point again, rounding it out to about 4.5 percent increase.

It doesn’t seem like a lot, but when you consider this is an incremental increase that happens every year, and we are talking on a global scale here, it certainly does add up. These increasing percentages are bound to strap several working classes, but will especially strap the poor financially, making food donation programs and subsizdizations a virtual necessity just to feed our own population. Or the poor class will be forced to give something else up in order to eat properly.

I’ve noticed higher prices on fruits and veggies so far, but the squeeze hasn’t hit me nearly as hard as I know it could hit others who are having a tough time paying their bills and keeping up as it is. McCain, the Republican presidential nominee, has actually just proposed a gas tax holiday, which would take away gas taxes, which make up a significant portion of what you pay at the pump, for the coming Memorial day weekend, hopefully easing some of the financial burden on families and businesses. I’d say much more drastic measures are called for, but this would at least be a start. Heck, it would make McCain a pretty popular guy too!

Most small business owners are not expecting the fed’s stimulus package tax rebates that, for many, are coming as early as May, to really help boost their businesses in any meaningful way, if at all, according to recent surveys. Some do still believe though that the rebate checks may help stimulate their business. Those that are in the majority may be right though.

According to recent polls done in samplings of populations around the US of people expecting rebates showed that most people don’t plan to make any wild purchases with their rebate checks, but rather either save, invest, or pay bills off with it. Very smart, but if this is the case, it may not help to stimulate the economy by giving money back to businesses and getting consumers to do what they do best - spend, as anticipated.

The economic stimulus package was created in hopes the people would go out and spend it in retail and services so that we could get the GDP, or Gross Domestic Product, going back up again, and get the spending mentality going in America again, which has helped us become a dominant economy and marketplace, and a great place for entrepreneurs - it’s the “land of opportunity” for exactly that reason, but the land of opportunity has recently suffered some setbacks which the government is trying to bail us out of.

Well, it seems that news outlets are increasingly loving the gloom and doom headlines that try to create mass hysteria, showing that our economy is going down the toilet and pointing toward signs of recession. Why is it that every day, I see the word “recession” in the headlines? I must say, it gets exhausting to see this every day, and it’s no wonder American consumers have major anxiety about where the economy and the housing and job market is headed today.

Let’s see, the latest headlines have been running along the lines of “house sales hit new lows”, “job woes increase”, and the latest is that the job market has taken a nosedive for the lowest amounts in years, prompting more concerns over a recession or economic downturn. No wonder everyone is running scared from investing, buying homes, credit, and everything else under the sun that has to do with money.

Heck, I’ve been getting emails about economic paranoia as well, from people who are otherwise rational thinkers, saying that our dollar is going to become worthless, that we are going to suffer more and more problems with housing, that the stock market is never going to recover, and nothing short of a civil revolution soon if something doesn’t change.

This gloom and doom is all familiar, thank God, and it has never come to fruition. The US economy is just too strong to take a nosedive forever, and it seems that people are counting on that who are confident enough to stay in the markets as they are. I for one am a “long term bull” to steal from Warren Buffett’s terminology, on the US market, and although I know right now may not be a good time to be investing in stocks, I do know that it will recover and that buying stocks right now is probably one of the smartest things to do, you just have to buy relatively safe stocks now.

Such as PG, Procter and Gamble and GE, which pay good divdends and are relatively stable and safe havens for money are good bets. Just look up “Best dividend stocks to find out historic returns and make your decision from there.

In response to fears of a deepening of recession, the Federal Reserve has dramatically dropped the key interest rate. The move is intended to result in a lower cost of borrowing. This, in turn, should stimulate consumer spending. There have been three rate cuts in the past three months.

What effect will this have on various facets of the economy? The consumer interested in acquiring a new loan, refinancing a mortgage or with an adjustable rate mortgage will benefit from the Federal Reserves cut in the key interest rates. Many of the major banks cut their interest rates from 6% to 5.25% in response to the Federal Reserves actions.

Consumers with credit cards will probably eventually see a lowering of their interest rates. This will, most likely, not occur immediately. Usually, the credit card companies have a delay time of about 3 months before they react to reductions in interest rates.

Savers will not benefit as the returns on their savings will be down as a result of the interest rate cuts. The return on investment on C.D.s, money market funds and municipal bonds are down also at this time.

The population that will be hit the hardest from the economy and the interest rate cuts are the retirees and others living on a fixed income. Inflation has been spiraling for necessities such as gas, food and heating bills while the return on savings has gone down.

The stock market reacted favorably to the Federal Reserves aggressive course of action. Wall Street responded with the largest gain in five years with the Dow Jones industrial average up 420.41 points on Tuesday.

Although not all of the population will benefit, hopefully the Federal Reserves proactive response to the ailing economy will be effective in curbing a worsening recession.

Well, I for one firmly believe we are smack in the middle of a recession. A recession is classified as several consecutive months, 3 at the least, where the GDP, or Gross Domestic Product, is reduced, consumer spending is down, and consumer confidence are at record lows. I would say that what has been happening lately classifies as a recession, and not even anything that has happened recently, but I think it’s a collection of what has happened over at least the last year. That’s just my opnion, from the news I read about financials in the paper and from what I’ve observed myself.

Recently me and my best girlfriend went shopping in a more upscale shopping mall out in the Cleveland area, and couldn’t believe not only how packed the parking lot, restaurants, and mall itself were, but also how many consumers were doing just that - consuming. These weren’t all just browsers, they were definitely buyers, as attested by their multiple bags of merchandise.

I have heard that some markets are really suffering though, one of them being the new and used car market. New car sales are at record lows, and manufacturers seem to making special offers on them just to move them off lots and entice people to buy them in this down market.

They are also making special financing offers like low apr credit lines and fixed low apr percentage loans so that consumers can rest assured they are getting a good deal on paying for the new car as well, which is a big ticket item for most people and requires a lot of thought and research (aka shopping around) to decide on what to purchase.

It may be a slight rally as has been seen in the stock market as well, because of the rebates that the government is giving back to tax paying citizens (and from what I understand, even non tax paying citizens will be getting a rebate). People may be going out and spending this money instead of stashing it away, and since no one has actually gotten their rebate checks yet, they are probably anticipation spending since they know they will be getting it soon. It still doesn’t take away the fact that consumers are hurting, our dollar is weak, and home sales are tanking.

Well, it seems like many states, at least with progressive-thinking leaders at the helm, are thinking about initiating their very own stimulus program, modeled after the Federal government’s tax rebate stimulus package, but of course on a smaller scale, to help boost the economies in their respective states as well as help individuals out financially in their respective states.

While the federal tax rebates range from several hundred dollars to almost a thousand dollars, and more for married couples who are eligible, the state rebates are looking to give anywhere from under one hundred dollars to a couple hundred dollars to help stimulate their local economies, and perhaps even lend a hand to the broader national economy.

Many states are also looking at helping out people who cannot pay for their mortgages, or are even having trouble paying for health insurance (like the current program Oregon is trying to promote to help subsidize it’s citizen’s health plan payment options). Some states are looking at paying for their own little stimulus packages by perhaps scaling back on certain projects, or even by forgoing some of their future investments (state economies do invest in certain things to generate money for the government).

Of course there will be some that are better able to help out their citizens, but that all depends on how their local economy is structured, as well as the local leadership since they can put the kabosh on the whole thing if they think it may be detrimental in some way. Of course, these ideas that some states have also has its critics, since some say that because state’s economies and systems are set up differently from how the federal government runs, they should leave this type of fiscal policy up to the federal government so they do not mess with other areas that need attention, like the schooling systems, roads, and other items that are left up to state government.

I, for one, hate even putting this type of headline on this weblog, however, it seems to be what all the news outlets are screaming lately.
That is, among all the doom and gloom about our overall economy here in the US, there is a newly surfaced report that the Fed has announced the
outlook has gone from bad to worse. Call me crazy, but should they just maybe underplay that, or even not broadcast it so broadly?

After all, we as humans can’t help but follow the path we think we should be by what’s going on in the news, so in essence, is all this news
really furthering the depressed economy? Don’t get me wrong, I’m all for the information age and freedom of speech, but I’m just asking, when is all
this information just too much, to where it begins to set itself in our subconscious minds and actually create the economic bed we lie in for the
next several months?

With the Federal Reserve, headed by Ben Bernanke who succeeded legendary Fed chairman Alan Greenspan, authorizing two back to back cuts in the
interest rate, and then coming back and saying that the GDP, or Gross Domestic Product, which is considered to be the figure by which the health
of our economy is measured, is still going to be lower than previously forecasted, it seems that many people are losing hope that 2008 may be our
year to rebound.

Add into all this fiasco that the stock market has been pretty volatile for a while, and you’ve got people running scared from stocks and other
securities, and also taking their money out of the economy in other ways that would actually benefit it, making the whole thing a worse situation by
pulling money that might have been spent and invested in businesses which drive the economy, and exacerbating an already festering situation that is
ready to come to a head.

Many economists have said that we are already knee deep in a recession, but some other still feel we’re on the “brink” of one. Where do you stand?
How are you dealing with the recession, if at all? Economists may be split on their recession standings, but I for one believe we are already in one.
It’s difficult to tell whether a recession actually occurred until it’s over though.

Well, the last person you want to hear admit that the economy forecast doesn’t look so hot is a politician - namely the president. And President Bush has recently stated that he admits the economic forecast, based on the information we have now, isn’t looking too hot. He’s even proposed the now well known package which include rebates in the several hundred dollar range to workers in the US to try to stimulate the economy out of its doldrums, which has many businesses and individuals suffering unfortunately.

The economy is, has been, and always will be cyclical in nature, meaning that it will go through ups and downs, and we won’t always have the rosiest outlook on how things are running money wise in this country, that’s just a fact of life. However, I do think that the media’s role in inducing panic and near hysteria has taken a turn for the worse, and is partly to blame for the faltering economy, as much as any job rates and interest rates or subprime mortgage issues has.

What I mean is, I wish the media would be a bit more responsible on reporting things like speculation about recessions. It’s hard not to panic when every day you see headlines that seem to over exaggerate what’s really going to happen, or say things that aren’t true and may not come true on pure speculation from people who don’t know for sure what’s going to happen any better than I do.

The Fed though, has responded to this outpouring of concern about the economy and what direction it is headed by cutting key interest rates several percentage points, or at least fractions of percentage points, in efforts to try to stimulate the economy and make consumers “consume” more by giving higher chances of them getting low fixed APR rates rather than higher variable rates on loans and mortgages. Many think this is only a very temporary bandaid though, which I happen to agree with, and some even go as far as to say that they believe the government should just stay out of economic issues.

I’m not sure if I believe that, but I’m also not sure that a tax rebate should be done either, as it’s not clear where this money is actually going to come from. Hopefully Bush will have better news about the economy than saying that there are “troubling signs” ahead or at present. Could this potentially make things worse in the long run? Thoughts?

With the new Federal Reserve prime rate cut to 3.5% down from 4.25 percent, which is pretty significant although it may seem small at first glance, what will that mean for consumers? Well, it’s a plan that the Federal Reserve, headed by Ben Bernanke, who was Alan Greenspan’s successor, came up with, at congress’ and consumer’s urging pretty much, to help stimulate the economy and encourage home buying and mortgage applications and prevent a recession all at once. Tall order, huh?

Well, with the new federal rate cut, what can that mean for you? If you’re looking to borrow money for a mortgage on a home, it can mean almost a whole point lower on your mortgage interest rate, which doesn’t sound like much, but adds up to thousands and thousands of dollars on some homes over the course of a typical 30 year mortgage loan. If you calculate that mortgage interest, it is quite a savings and if you figure you can save or invest that savings, you’re looking at thousands of dollars over time!

It’s actually quite exciting if you think about it, and are in the market for a new home. Heck, maybe even some home flipper prospectors will get in on the game and that will stimulate the economy even more. Many people believe the new stimuls package in addition to the decrease in the prime interest rate is not enough to stimulate and fix the economy long term, but rather is a bad idea, that we’re just borrowing money from our children and how are we going to pay it back. What do you think?