Unwinding The Financial Mess

I had a discussion months ago with a student studying international finance and we got into the total debt in most of the US, with State, Personal, City, and Federal debt considered. We were amazed at how often people got solicitations for adding more debt, even personalized to a certain extent. Here, privacy laws forbid the use of personal information other than name and address, so we certainly did not see as much as others who joined in the discussion from the US.

What happened when we did some very basic math was astounding! If all the debt for all levels was taken into consideration, then put on each adult in the US., we soon realized that each person was actually in debt deeper than WE even imagined.  Every adult in the US was actually indebted to the tune of 300% of their income! (basic math did not get too complicated, so this is an educated estimate). Wow! Ouch!

This means that, even if there were no interest charges, it would take 3 years of absolutely no expenses to repay the debt! Now, take in the interest on things like charge cards (up to 28% annually) and it seems like a huge number of people are working in the new version of the “Company Town”.

How on earth to get out from under this? Tough measures and tough times are going to make it harsh. Even the banks have huge debts that they cannot repay. No consolation to know you are not alone here, and add in the federal debt in the US, it seems hopeless.

It is not hopeless, but it certainly means some pretty drastic measures. Burn the credit cards. Sell what you can to pay off those cards first, they will be the largest drain on your money. Talk to a credit cousellor, and follow that advice. Forget going on holiday to Disneyland or the Bahamas, and take what you can in holiday pay and use it to reduce your debt.

The picture internationally is getting clearer, but certainly not any nicer. Iceland is facing a national bankruptcy! Japan and South Korea are both losing jobs, and in Japan the suicide rate among men is rising. That is no answer, but hopelessness and feeling boxed in drives some over the edge. If that is where things are heading, time to find someone to talk to rather than isolation.

Britain is facing job losses, housing is losing value, and even the currency is dropping like a rock. The Canadian dollar falling, but job losses are fewer right now. Europe is also dealing with losses and economic meltdown.

What to do? Stress is often alleviated in positive ways or negative ways, but the choice is personal. Taking a walk along a fall path is a far better choice than drinking, for example.

Pennies may seem inconsequential, but even knowing there are some put away gives some mental relief. This may be the time to connect communities, be active in finding answers instead of concentrating on all the problems. Doing something constructive is far better than worrying.

The one thing no-one should be doing now is taking on reckless debt or borrowing for luxuries.

Going on down the road

The bill is passed, now what?

Business owners, for some reason, think they can run their businesses on credit alone. This crisis may well teach a lot of people they cannot run on credit, cannot use credit to keep the wheels on the car, literally or not. Business owners, even the larger ones, need to revise their plans to ensure they have cash on hand, and keep a healthy balance in the company funds, especially if you honestly intend to pay your employees.

Same goes for those who thought the “streets paved with gold” were not going to turn into brass. The everyday person now understands how easily over-use of credit can cause some spectacular results. The lessons of wall street really don’t differ that much from the rest of us. Do your homework, check out the places you want to put your trust in, your investments, and yes, it means you have to understand what risky investments are, if only to avoid them.

The world economy may well stall out. Hopefully the changes in the bill just passed through the congress and senate will lead to some smarter moves in the treasury, the whole legislative process, and maybe, just maybe, Paulson and the others who apparently were not capable of taking on the lobby groups will find they must work for the taxpayer instead.

Individuals all over the world, myself included, have come to understand that it takes very little to tip the whole financial basket into the sewer, and some will find it tough to climb out again. I have put money away, and I fully intend to keep doing that.

Money specialists and credit advisers have told people for years to put away at LEAST 3 full months of expenses. I know I didn’t, but I am damn sure going to do that now. It may take out spending money on treats, wanting a new computer, maybe postponing some other purchases, but I will do that.

Bonds are now a good investment, so if you have money you do want to earn interest on, put your money there, especially if you have children, a mortgage. Pay off what you can, as I am going to. I want to be able to be as debt free as is humanly possible. It may cause a slowing of the retail markets, but at this point in time, unless I am healthy financially, I am not going shopping. Sorry.

The toxic sludge that is now going to the government I definitely hope (because there is nothing I can do otherwise) will turn into taxes returned, but I am not going to count on it. Call me sceptical.

Regardless, this may be the right time to put aside money, to not fall for some of the sales pitches from mortgage brokers, not to be so trusting when it comes to money. I was, perhaps, lucky, but there will always be someone out there who will twist facts, lie, and connive, so I am putting myself on notice to do my work, research, and find out what they are talking about.

If they come calling, now I will tell them, “Phooey!” take your scams, your lies and take a long, long walk on a very short pier.

After going around the world with news items, blogs, etc. I am confounded. Does anyone in the US save money for their own use? Businesses want credit to just cover daily expenses? To me, borrowing is something to do when I have most of the money I need, not something to use for buying coffee, or to go to a movie, but apparently I am the odd one here.  We all know the banks did not keep much money in their possession, otherwise they would be on solid ground and healthy. Hmmm how very very odd.

Recession, Depression, Whatever You Call It

John Kenneth Galbraith has authored a number of books, “The Crash of 1929” and others on political economics. He has been an ambassador, a writer of books and he has a solid take on the ways American influence has affected the world, good and bad. Ironically, he is a Canadian. If you want to read some enlightening books on economics and the world, find his books. They may have been written years ago, but they are certainly relevant now. If you want to cut to the relevant part here, go to around the 43 minute mark on this video. You will be astounded at how much things are almost duplicated then, and now! Bloody scary, bloody ridiculous!

There is an impression that if left alone, the government to stay out of the market that the financial markets, by some God given power, will solve the problem.

This is from the years just before the  Great Depression Do these words sound like some of the current Congressional leaders? The Senators? Even the President himself? Take a look at how Eisenhower, Roosevelt managed to deal with economics, the withdrawal of the US in unpopular war (Korea) and realize how much history has to teach the current administration and any administration to come!

Even if they manage to pass the bill facing the US right now, the economies of the world are NOT going to be in any kind of rosy state for quite a while. This bill, in whatever form it takes, will NOT solve the problems, it is just a start. Period.

The massive consumption of goods is not going to continue. I figure that this will affect all of us for at least 5 years, maybe more, so if any of us figure that we can resume spending, borrowing using credit cards and other lines of credit, we are WRONG.

There are going to be jobs lost in Asia, China, the US, and Europe, but what this bill may do is to keep those losses to a lower level, not stop them. Business will not resume as it did before the banks and  the toxic waste they devised became known. What is really mind boggling is that most of the very banking “experts”, the economists, and the ordinary people don’t even understand this. Most of us, including the banking and economics experts find this far too complicated, far too extensive, far too large in scope to figure out.

Regardless of how this comes down, I am going to see property prices drop more, although here the property prices are still way over the true level in value anyway. The foreclosures in the US will continue, they will rise and so will bank failures.

Get the idea? This bill is NOT a cure, not a way to solve the problem, just a small beginning, with pain still to come. The international news knows this, why on earth do the Americans in the administration, including Paulson and Bernanke not know it, nor the President?

Depression Thinking when Money Goes Poof

I guess I am glad I had generations ahead of me who did live through the last depression and knew how to get through and be able to still share what they had with others.

First thing they did was to PUT MONEY ASIDE, even if it was a few pennies, a few dollars and keep it. The little bit may not have bought a house, but if you KNOW you have something, even a paltry bit, to fall back on, you are far less fearful.  Then they became inventive. They found ways to take something that had become broken, worn, and turn it into something useful. They took clothes that had hole in the knees and either patched the knees or turned the clothes into other items.

Why on earth am I even going here? From watching this, hearing the histories of the older generation, and doing some reading on the internet, I am about 50/50 on this going sour, becoming a full and very nasty depression, world wide.

So, instead of trying to play “catch up” I am saying get some practice in being innovative in your living, inventive, even thrifty! Habits can only become habits if you do them, and repeatedly.

Bartering was one of the ways people now are getting things done and without paying any taxes. Almost anything from baking bread, laying brickwork, to running people around in your car can be bartered. Yeah, yeah, I know, the tax man does not like this, but when you are the one feeding your kids, you need to find ways to lessen the strains on your wallet.

Gardens and putting in gardens saved a lot of people from going hungry, so if you live in the city, even in an apartment, you can save at least a few dollars by growing something. Peas grow up, trained on vines, even growing things like lettuce can be done indoors. Herbs can be traded or used to flavour bland, boring food. Maybe you have a neighbour with some free yard space. Talk to them and see if you can barter some raking of leaves for the space, then plant raspberries, blueberries or what you can in your area.

Here is a totally revolutionary idea! If you are up to debt to your eyeballs, then maybe you HAVE to learn to do this because otherwise you face some nasty consequences.  Saving a few pennies, saving a couple of dollars IS POSSIBLE in almost any condition, ask the people living on the streets, they have to.

People lived through the Great Depression and yes, they did manage to save. Why not now when you can do it with far less pain? Your survival, you children’s survival may well depend on this and your own abilities are worth more than money any day, any year, any financial circumstance, use your abilities for what they are, you best asset.