Surviving the Coming Economic SUPER-STORM
Surviving the Coming Economic SUPER-STORM
Recent reports coming from the Federal Reserve and the U.S. Census Bureau are alarming. Over 39% of Americans are actively being pursued by debt collectors! If a matter is in debt collection, it means that the debt is over 180 days past due. How is it possible that this has happened in the richest nation on earth?
In the recession of 2008, one of the main tools the politicians used to combat the economic bubble was to ease the cost of credit. Why did they do this? These actions were based upon Keynesian economics principles that historically have never worked wherever they have been employed. Why do the politicians continually utilize unsound Keynesian principles of easing interest rates, inflating the money supply, and bailing out private businesses and the bankers? One can only speculate on such matters, but it is safe to assume that the prodigious economic theorist, Ludwig von Mises, would never have approved of such actions.
Unfortunately, there are consequences to failed economic policies. Eight years of historically low interest rates have created another credit bubble. Instead of allowing the normal economic cycle to run its course in 2008, politicians worsened the problem. We are now entering into another economic disaster, albeit much worse, even though we have never recovered from the previous recession.
Quantitative easing of interest rates has resulted in a credit bubble the size of which has never been seen in history. There is a total outstanding U.S. consumer debt of over $3.4 trillion. In addition, the average U.S. credit card balance is over $15,675, and the average household carries $132,158 in total debt. This is an increase of over 10% in just the last three years. Assuming an average credit card interest rate of 16%, one would have to pay over $2,500 annually in interest payments alone just to maintain the same balance. If one tried to pay an additional 1.5% of the balance, it would take over 14 years and almost $40,000 to pay off that credit card. When close to 70% of Americans have less than $1,000 in savings, how will it ever be possible to pay off this debt and save enough for retirement?
Many, however, tell us that things are getting better. They say look at the stock market. It is soaring. Unfortunately, have you seen what happens to the stock market every time there is a rumor that the Federal Reserve Board is going to increase interest rates? The market tanks. The market is in another bubble caused by the same Keynesian economic principles. What proof is there of this bubble? Currently, the average price of the shares are over 22 times its earnings. This exceeds the same measurement just before the last 2007 collapse. In addition, one should realize that the stock market is a lagging indicator. Leading economic indicators, not lagging indicators, have always given advance warning of a collapse before there is any stock market movement.
It has been argued that one should not worry since we are now in a global economy. Sadly, the leading economic indicators reveal that such reliance would be misplaced since the world economy is in as bad a shape as the U.S. For example, Chinese construction and heavy industry, which lead their economy from 2003-2013, is now at recession levels. The consumption of steel has always been another good economic leading indicator. Even though there is a glut of steel on the world market, China has increased its exports of steel by 23%. Obviously, China cannot internally use its own steel production, and its economy is in trouble. To heighten this problem, it has been estimated that China has over 30 trillion in debt! The world cannot count on China to bail it out of this mess.
What about other parts of the world? Actually, the world GDP is down 3.4%. Korea’s exports are down 16%. Germany’s imports of high tech goods are down by 18%. Japan has never recovered from its last recession over two decades ago, and there have been rumors about a planned Japanese default on its debt obligations. Banks are also important barometers of the economy. The third largest bank in Europe, Standard Chartered Plc, announced that it is eliminating one in every seven employees. Credit Suisse said that over 5,000 employees will be cut. Then there is Deutsche Bank. Not only has the Frankfurt bank announced that it will eliminate 11,000 employees, there are also rumors that it will soon need a bailout. Unfortunately for Deutsche Bank, German politicians have in the past been less willing than their U.S. counter-parts to commit public funds to such endeavors.
Regrettably, there is a coming economic super-storm. In the past, the middle class has had sufficient resources to weather such turmoil. However, the situation has now changed. In 1979, the middle class controlled 46.4% of the total national income, and the rich and upper class controlled just 30%. Since then, the middle class has been dealt some bad cards. In 2014, the middle class controlled only 25.8%, but the rich and upper class suddenly controlled 63.1% of the total national income. There has been a severe erosion of the middle class, and it is no longer able to survive severe economic downturns.
Changing economic conditions can exacerbate debtor issues. During an economic slowdown, credit card companies often write off debts they cannot collect from some consumers. For instance, in the 2008 financial crisis, there was a substantial increase in such write offs so that the credit card companies could take their tax losses. However, these write offs were then sold to aggressive debt collection agencies, and this often resulted in lawsuits, garnishments, attachments and the unnecessary expenditure of attorney fees and litigation expenses.
So what is an average person supposed to do to confront the coming economic collapse? The solution is clear. One should get debt free in any manner they can. If reducing expenditures and paying off existing debt is not possible based upon one’s current income and debt load, other means should be considered immediately. Debt settlement is one possibility. Tim Saighani of Countrywide Debt Relief LLC recently explained that his company on average settles debts for approximately 45% of their current obligation. Countrywide Debt Relief LLC is an “A+” rated debt settlement company and comes highly recommended. While not everyone will qualify for debt settlement, it is certainly a viable option for many.
For those that do not qualify for debt settlement, bankruptcy is another consideration. If one qualifies for a Chapter 7 bankruptcy, often your debts can be discharged and your assets preserved, depending on the applicable statutory exemptions. In addition, Chapter 13 bankruptcy is an option that should not be overlooked. This option is especially important for those that do not qualify for a Chapter 7, or those that are in arrears with their home mortgage payments. Chapter 13 can be a very powerful financial tool that one should always consider.
Nevertheless, pay heed to this warning. There is a coming economic super-storm. The best way to plan for this financial collapse is to right your personal financial ship. Don’t put it off until it is too late. Get out of debt now, and stay out of debt.