Prime Rate Credit

Ugh, it’s hard to keep up with what’s going on in the crazy economy today, isn’t it? I swear just a few short weeks ago, I read a headline that promisingly claimed that US consumer borrowing was on the up trend. Not so any more according to this latest headline, claiming that no, consumer borrowing is in fact on a downswing. Apparently it has to do with credit cards (we wonder why we have bad credit these days, read on for more of why) Can’t keep up? Neither can I, so bear with me.

They have all these nifty figures that they use to figure out whether consumer spending and borrowing is up, but what they don’t tell you is that even though it may be technically “up” from last year, it’s still not considered “up” to them because they have already made projections about what it would be at for the next year at the same time.

Not really sure how they come up with all those numbers, since I haven’t heard of a recent population explosion which would lead me to believe that consumer borrowing or spending would skyrocket in one certain year over the next, but I guess we should listen to them because they’re the experts. Economic analysts had expected consumer borrowing to be up more than it actually was, so apparently this is a signal of some sort that yes, we are indeed experiencing a faltering economy right now. News flash, right?!

The bad part is that consumer borrowing went down in relation to non-revoloving types of credit, such as mortgages and loans, but went up ever so slightly for other sectors that really don’t benefit the consumer because they are charged on a revolving basis, which means the consumer is charged on purchases they made months ago but havent’ paid off, over and over and over until the card is paid off. It’s a system where credit cards, even the best credit cards out there, charge interest every month, even on balances that are carried over.

So you don’t just pay interest once on that set of dishes you charged on your favorite low fixed apr credit card, but you keep paying whatever percentage you signed up for over and over again on that amount until it’s totally paid off. Raw deal, but also a great deal when you think about the things you have been able to purchase because of credit cards that would not have otherwise been possible due to budget restrictions.

Well, the Federal government was hoping that the tax rebate checks that are fairly generous amounts of money for many people, especially married couples, would spur the economy with a bit of old fashioned frivolous spending. Wait, what did I just say? Frivolous spending? That’s a thing of the past in this gloom and doom economy, right?

Well, the government is not counting on that, and they are hoping that the tax rebate checks coming in May and beyond will be spent (blown) right away, boosting the retail environment and prompting a surge in consumer spending that may in fact boost the economy by giving more to business, small and large alike, and help pull us out of an impending or already-here recession. Heck, maybe while we’re at it, it may even boost the stock market which seems to be as volatile as oil and water mixed together right now.

Problem is, in polls that were run recently, consumers are saying that they plan on either saving the money or paying off bills with it. Does this really count as spending, at least in the way the rebates were intended to be spent? Well, that’s for a specialist to decide, certainly not me, but I’m not so sure that’s what the Fed had in mind when they put together the economic stimulus package that included the tax rebates to tax payers.

It still may help though, because if Americans are going to save it, that means more money for the faltering banking economy, and also may mean more money to businesses anyways, since they will still supposedly be paying off bills that may be late, or will be paying this money to some other business, whether it be a grocery store, a utility business, a car payment, or whatever other late bills of catch ups the American people decided needs it most (hmm, maybe even that gas credit card you’ve been meaning to get paid off so you don’t have to look at it any more, you name it).

Well, in other “woes” of the economy, something that should really be the first thing noticed when the economy takes a downturn, discretionary spending on things that are considered “discretionary”, meaning not necessary or luxury items and services that people typically of a more affluent financial stature would spend their disposable income on.

Things like luxury hotel rooms, massage services, spa services, expensive cuts of steak at upscaled steakhouses, and even first class seating on airlines are starting to notice a downturn in spending and more and more people are using frequent flier miles they get from credit cards, from this more affluent population of spenders. They are saying that the recession is starting to filter down into the luxury goods market simply because the recession affects and squeezes everyone’s pocket books, not just one population segment, unless of course you are Warren Bufftett or Bill Gates, who will always have a huge buffer.

The affluent are spending less on leisure activities that are typically reserved only for the wealthier segment, like golf, and are also spending less on luxury gifts and lines of products. Although I must say, they sold out of the upscale line of boots that goes for upwards of 300 bucks at Christmastime, so I don’t know how true this could be. I’m referring to the lambskin brand of boots, the Ugg brand, which is a celebrity favorite and also happens to be a favorite of the more spendy crowd in the general population as well.

Although no economist can truly call out this possible recession until all the numbers are in and it has been months, we probably are right in the middle of one, and since this is general consensus of everyone who matters, then I saw it’s a real recession no matter who validates it. That’s just my opinion though, and Lord knows I’m no economist!

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.

We bought a home roughly one year ago, and we are just now starting to notice we are getting offers from both our original lenders (we got two mortgages, one to cover the balance after the downpayment and one to cover the downpayment), and also from other lenders who would like nothing more than to lure us away with promises of a lower mortgage interest rate and better payment options. We however, happen to be perfectly happy with both of our mortgage lenders, who happen to be Citimortgage and Chase mortgage.

A woman who I work with at my job actually happens to be a part time real estate agent as well, and she let me in on something that most people don’t know, or when they get the news in the mail they are perplexed. Most of the time, your mortgage lenders will repackage your loan and sell it to another mortgage lender.

I still have not gotten one of these yet. She said that oftentimes, you will get a letter in the mail that says you are now making your payments to a different lender, and it’s all perfectly legit, because the original lender sold the “rights”, and risk along with it, of your mortgage to another lender for whatever reason.

I guess it’s kind of like when you have a checking account with a certain bank, and that bank gets bought out by another bank, you really have no say in who’s name appears on your checks or who you keep your money with unless you choose, voluntarily, to take your business elsewhere. I had a hard time understanding this though, especially on loans like ours which are good risks, where the mortgage company will make out in the end from gathering thousands upon thousands of dollars in interest from you on the front end especially.

Why sell it then? If anyone who has any knowledge in this field has a comment, please do explain for the rest of us.

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.

Fears about the safety of individual savings and nest eggs rose with the faltering of Bear Stearns Cos., an investment bank. The Bear Stearns Co. had to sell, at a drastically reduced rate from just several days prior, to J. P. Morgan Chase and Co. for just $2.00 a share.

In a ripple effect, concerns have grown that the problems on Wall Street could effect commercial banks and their individual depositors. The response to this concern is that bank accounts for individuals are backed by the FDIC. The Federal Deposit Insurance Corp. covers up to $100,000.

The coverage by the FDIC includes trusts, IRAs, certificates of deposit and savings and checking accounts. For accounts, such as retirement accounts, the coverage can be as high as $250,000. Customers of brokerages are similarly protected by a different agency.

The Federal Security Investment Protection Corp. protects the assets of investors at the brokerage firms. So, if your brokerage failed, you would still be covered. Some wonder what the limits of coverage would be by the FDIC if banks failed collectively. In 1991,502 banks failed in three years and the FDIC’s reserve ratio slid as low as negative 0.25%. The FDIC still covered all depositors at failed banks.

Last year, the FDIC was following 76 problem institutions compared with 1991 when that number was 1,430. So 76 banks are relatively easier for the FDIC to cover.

What is the tradition that you always probably think of from the Beaver Cleaver era, where home lives were seemingly perfect, almost never dysfunctional, and the guy brought home the bread while the woman was responsible for cooking, cleaning and child rearing. Very few “traditional” families exist these days, and a new role has been formed for both men and women when it comes to both financial responsibilities in the family, and how even the housework and yardwork is divied up between the two.

It used to be the traditional thought that men went out and worked all day to make money for the family to live on, while the woman stayed at home and did the laundry, scrubbed floors and took care of the kids if they had any. As a matter of fact, it was uncommon for women to be in the workforce, and most women were stay at home moms.

These days, it’s harder for women to be stay at home moms, since the financial burdens are shifting greatly to include the women more and more in the financial equation of a family’s success when it comes to the economics of the family unit.

We have more and more dual income homes now - and many mothers have even taken on the role of being the primary bread winner in lots of marriages and relationships, which was very unusual back in the days where they primarily only were employed to do more menial jobs such as secretaries and mill workers.

I talk to more and more families now that have the mother working full time and the man as well, and they are hopefully also splitting the chores at home that need daily attention as well. Speaking of, this has caused tension in many relationships as well according to relationship experts, who say that women feel now they are doing double duty. As a woman though, I do suppose that I’m a bit biased!

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.

Budgeting seems like one of those things that seems like such a great idea, and when written on paper, it seems to make complete and total logical sense, and even seems to be the only way to go if you want to have any hope of running a succesful financial life. However, when we step back into reality after our little budget planning systems, and are faced with both unexpected expenses as well as the occasional temptation to buy things that we know darn well are out of our budget, it becomes a lot less romantic to have a rigid budget.

Take for example by own situation. We just moved into a new house last year, and we’ve been in it for about a year now. The house was only about two years old when we moved in, so we figured we’d have minimal updating or repair to do when we moved in. The problem is that we didn’t account for how much furniture, decor, and other things we would be purchasing as first time homeowner, so it really messed up our budget from the get go.

You have to buy lawn mowers, many tools and other accessories that you didn’t have, including shovels, rakes, gardening things, maybe some landscaping items, and tons more stuff for the inside. Today, I still haven’t finished half of the rooms, and it won’t be another year before I intend to do so. It would simply break the bank if we were to try to force all of it into such a small time frame.

People are faced with these kinds of choices every day. What to wear, what to eat, and how to accessorize your home are only some of the ways that we can so creatively throw money down the prodigal toilet, so to speak, and I for one can be very good at doing that, especially if something strikes my fancy as being a “necessity” right away. For example, we are trying to take it slow and buy things that we really like that will also last a long time for our new home.

I made a trip to Bed Bath and Beyond the other day, fully intending to not really buy anything, just browse on my lunch break from work. However, I ended up purchasing a hundred dollar painting that I just had to have, because when was I going to find a deal like that again? These are the types of temptations that can sabotage your budgets, so it’s best not to go out just to “browse” as I’ve learned many a times.