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Posted: 10/10/2005 8:12:25 PM EDT
October 07, 2005

Squeezing Americans Dry
by Richard Benson
 

With rising inflation and debt payments, the household budgets of all of us are being squeezed. The picture does not look pretty.

Let's first look at inflation. Signs of rising prices - the way in which we are most influenced by inflation - are everywhere. Regular gas now costs over $3 a gallon, insurance and property tax bills are escalating, and staggering home heating costs will definitely keep Santa from coming down the chimney this Christmas. Natural gas prices are particularly worrisome as they push up the price of electricity, anything plastic, and the general cost of manufacturing. For 2006, the big effect of hurricanes Katrina and Rita will be the needed excuse to raise the cost of insuring a home by 10 to 30 percent (depending on where the lucky homeowner lives). Rising diesel prices push up the cost of goods on every store shelf because they have to be trucked in. The CPI data for September, scheduled for release shortly, is likely to show an annual rate of increase, over September 2004, of at least 4 percent.

So, how bad is inflation? In the past year, the wages and salaries of American workers have not kept up with inflation. If the CPI (currently at 4 percent) was honest and included rising housing prices and did not over-indulge in hedonic price adjustment, 5.5 to 6 percent would be the actual reported number. Bottom line: Americans are being squeezed by prices rising faster than income. As the winter heating bills pile up and rising manufacturing and shipping costs make their way to store shelves, our loss of purchasing power will only get worse.

Second, let's look at rising debt payments. Americans owe about $11 trillion dollars - $2 trillion for consumer debt and $9 trillion for mortgage debt. As much as one-third of the loans given today are adjustable rate (this includes credit cards, ARM mortgages and home equity loans). Americans owe over $800 million in home equity loans ("HELOC") which are mostly tied to the prime rate, with an average interest rate of 8 percent. Just a few short years ago, when the Fed Funds rate was 1 percent, these HELOC loans seemed almost "free" at 5 percent. Well, money is no longer free. Americans also owe over $800 billion of credit card debt with an average interest rate of 13 percent. Credit card debt is tied to the prime rate and like ARMs and HELOC loans, interest rates have been moving up at a steady pace.

The Federal Reserve has raised interest rates 11 times since they first started tightening and several more increases are scheduled that should take the Fed Funds rate to 4.5 percent by the end of January, 2006. Short-term interest rates have been rising 2 percent a year. Every time consumers are forced to pay another 2 percent on average for their $11 trillion of debt, they will have no choice but to raid the cookie jar for an extra $200 billion. The only problem is that most Americans haven't been saving so, unfortunately, their cookie jars are empty.

Worse yet, for consumers making credit card payments, the US Treasury has new regulations that will come as a real shock this fall. The Treasury has the authority to set minimum principal payments on credit cards and is increasing the minimum from 2 to 4 percent per month. For the average American with a $10,000 credit card balance, that increases the minimum monthly payment from $200 to $400. For the big spender with $50,000 in credit card debt, the monthly payments would pop from $1,000 to $2,000! Needless to say, a large number of people are used to paying the minimum every month, and millions of card holders are maxed out on numerous cards and barely meeting monthly payments. So, even if prices weren't rising, the American debtor will be getting hung out to dry by a noose of credit cards around their neck.

^^^^^^^^^Were you aware of this?...I'm glad I don't have a lot of CC debt ^^^^^^^^^

Between rising prices and debt costs, how bad is it really for the average American? Our guess is that most of us will experience an increase in monthly costs of no less than $300, and many will see their monthly costs rise over $700. Also, "The Bankruptcy Abuse Prevention & Consumer Protection Act of 2005" will require debtors to pass a strict Means Test to determine whether they can have their debts liquidated through Chapter 7 or whether they must enter a repayment plan through Chapter 13. This Act goes into effect on October 17 and is designed to make working Americans wage slaves to the bank for life so we'll not only get squeezed, we'll get crushed! The Means Test is just plain mean. With this new law, the bank not only comes first but a creditor may get to pay them forever!

Credit card delinquencies, as measured at the end of the second quarter of 2005, have been heading up towards 5 percent. When the minimum payment increases every month along with your heating bills this winter, I am confident consumer loan defaults will keep the bankruptcy courts busy.

Even before this big squeeze of rising costs, most of us couldn't afford to save. The question now is, "can the consumer afford to spend?" The latest government figures from August show consumption was down by 1 percent, and earnings before inflation were also down. Auto sales figures just released by GM and Ford for September show the sales of Sport Utility Vehicles collapsing by 50 percent.

Borrowing against the house, which has fueled increased consumption over the last decade, must now be used to pay higher bills for buying less. If we can no longer afford to save or borrow, it's likely we will no longer be able to spend. If the consumer cuts back, it means recession.

Before the war and hurricanes, the budget deficit was about $400 billion, and the trade deficit was $700 billion. Now, our country gets to pay for an extra couple hundred billion for energy; several hundred billion more for consumer, mortgage and Federal debt service; a hundred or two billion for the hurricanes; and another couple hundred billion for the endless war. Pretty soon this will add up to real money!

I, for one, wonder how long the United States can get foreigners to pay for it all so I don't have to foot the bill. Meanwhile, I am only considering stocks that look like good shorts. Gold and silver remain great investments, especially when bought on dips in their market price. Stay tuned and when in doubt, stay in cash!



Richard Benson
Benson's Economic & Market Trends
Specialty Finance Group, LLC

Link Posted: 10/10/2005 8:18:26 PM EDT
We should sticky this one.  Credit cards are evil.
Link Posted: 10/10/2005 8:20:07 PM EDT

Quoted:
We should sticky this one.  Credit cards are evil.



No, they are not. Retards who look at them as free money cause the problems, not the credit cards themselves.
Link Posted: 10/10/2005 8:24:11 PM EDT

Quoted:

Quoted:
We should sticky this one.  Credit cards are evil.



No, they are not. Retards who look at them as free money cause the problems, not the credit cards themselves.


Being I carry a zero balance and quite a few credit cards. I can say your wrong on that. Not all people who carry a balance ar morons. However quite a few have simply come on hard times, not sure if you have noticed but we have a inflation problem in our country. It is increasing the debt of many rapidly.

But hey yeah, lets call them all retards.
Link Posted: 10/10/2005 8:24:23 PM EDT
<====== Below average, ZERO credit balance.



For the average American with a $10,000 credit card balance


Link Posted: 10/10/2005 8:30:07 PM EDT

Squeezing Americans Dry


Michigan State already does that to me...    They are welcome to take their 'extra' fees and stick them where it doesn't get much light any time
Link Posted: 10/10/2005 8:31:56 PM EDT

Quoted:

Squeezing Americans Dry


Michigan State already does that to me...    They are welcome to take their 'extra' fees and stick them where it doesn't get much light any time


Move to Nevada, the home prices are gonna fall as well soon.
Link Posted: 10/10/2005 8:33:49 PM EDT
Standard of living will go down.. ahhh.. standard of living will go down...  all glory is fleeting.

Link Posted: 10/10/2005 8:39:30 PM EDT

Move to Nevada, the home prices are gonna fall as well soon.



I hope all realestate tanks. I'm ready with cash.
Link Posted: 10/10/2005 8:39:50 PM EDT



That's one of the stupidest things I've ever read  




Seriously - the PROBLEM is the debt, and that is not caused by evil credit card companies or mysterious economic forces driving inflation.  It is caused by the average american household that spends more $$ than they make.  

Who exactly should be blamed for that?  Hmmm - while there is the occasional family that has fallen on hard times and needs to incur debt, MOST of this debt is from people that just have to have the new car, the SUV, the jet-ski, the flat-screen tv, the x-box, etc. etc. etc.  




I also love how the insightful economic advice ends with the recommendation of buying gold and silver  
Link Posted: 10/10/2005 8:41:05 PM EDT

Quoted:

Move to Nevada, the home prices are gonna fall as well soon.



I hope all realestate tanks. I'm ready with cash.


Well atleast here it has already slowed up quite bit, I mean its not a hot time this season any how but compared to last year, Also with intrestr rates going up, that wont help it any. But who knows perhaps with rates going up prices will fall and you will see a strong market again.  When people can afford a home.
Link Posted: 10/10/2005 8:42:36 PM EDT

Quoted:


That's one of the stupidest things I've ever read  




Seriously - the PROBLEM is the debt, and that is not caused by evil credit card companies or mysterious economic forces driving inflation.  It is caused by the average american household that spends more $$ than they make.  

Who exactly should be blamed for that?  Hmmm - while there is the occasional family that has fallen on hard times and needs to incur debt, MOST of this debt is from people that just have to have the new car, the SUV, the jet-ski, the flat-screen tv, the x-box, etc. etc. etc.  




I also love how the insightful economic advice ends with the recommendation of buying gold and silver  


Didn't read the silver and gold part, but I sure as hell wouldnt buy any. That would be like by google stock right now.
Link Posted: 10/10/2005 8:44:13 PM EDT
Holy smokes! $10K-$50K in CC debt?!?!?  WTF are people thinking?


Quoted:

Squeezing Americans Dry


Michigan State already does that to me...    They are welcome to take their 'extra' fees and stick them where it doesn't get much light any time


Clemson is the king of adding up "little" fees here and there.  Like the $500 increase per semester just to students in my college
Link Posted: 10/10/2005 8:46:37 PM EDT

Quoted:
Being I carry a zero balance and quite a few credit cards. I can say your wrong on that.



You can say whatever you like, though I suspect the same amazing lack of facts from you that was displayed in the recent 'Age of the Earth' thread.



Not all people who carry a balance ar morons. However quite a few have simply come on hard times, not sure if you have noticed but we have a inflation problem in our country. It is increasing the debt of many rapidly.



Really? People are forced to use credit cards? MBNA sends armed thugs to peoples houses and compels them to make purchases they will not be able to afford?

Poor money management skills are to blame for the vast majority of personal debt, not credit cards or 'inflation'.

Link Posted: 10/10/2005 8:46:42 PM EDT
This is so disappointing.
i dont even OWN a credit card. Why does everyone else get to have all the fun.
Link Posted: 10/10/2005 8:51:40 PM EDT

Quoted:

Quoted:
Being I carry a zero balance and quite a few credit cards. I can say your wrong on that.



You can say whatever you like, though I suspect the same amazing lack of facts from you that was displayed in the recent 'Age of the Earth' thread.



Not all people who carry a balance ar morons. However quite a few have simply come on hard times, not sure if you have noticed but we have a inflation problem in our country. It is increasing the debt of many rapidly.



Really? People are forced to use credit cards? MBNA sends armed thugs to peoples houses and compels them to make purchases they will not be able to afford?

Poor money management skills are to blame for the vast majority of personal debt, not credit cards or 'inflation'.



First off fuck MBNA  I would never have any dealings with those mother fuckers again. And inflation has something to do with our debt Im sorry. If your cost of living was $30k a year in 95 today it would be nearly $40k and sad to say salary isnt keeping up. So to keep people go into debt, Im sorry I would much rather be $100k in debt than living in the streets.
Link Posted: 10/10/2005 8:59:55 PM EDT

Quoted:
Holy smokes! $10K-$50K in CC debt?!?!?  WTF are people thinking?


Quoted:
Squeezing Americans Dry



Michigan State already does that to me...    They are welcome to take their 'extra' fees and stick them where it doesn't get much light any time

$10k to $50k isn't a whole lot. And most are in far more debt than $50k most home owners in America have a mortgage and few will ever pay it off. At 5.6% your paying double on that house to the bank. Think with the interest rates go up on the interest only people, such as in california where its pretty damn hard for the average person to own a home with out an interest only payment. If it gets back to where it was they will be paying just around double if not more per month for their home I belive the average price right now is  around $480k. So the CC are the least of many worries.
Link Posted: 10/10/2005 9:05:35 PM EDT



Worse yet, for consumers making credit card payments, the US Treasury has new regulations that will come as a real shock this fall. The Treasury has the authority to set minimum principal payments on credit cards and is increasing the minimum from 2 to 4 percent per month. For the average American with a $10,000 credit card balance, that increases the minimum monthly payment from $200 to $400. For the big spender with $50,000 in credit card debt, the monthly payments would pop from $1,000 to $2,000! Needless to say, a large number of people are used to paying the minimum every month, and millions of card holders are maxed out on numerous cards and barely meeting monthly payments. So, even if prices weren't rising, the American debtor will be getting hung out to dry by a noose of credit cards around their neck.




I was worried that this would happen, with the CC industry writing the new Bankruptcy law, that they would turn around and have their lackeys in .gov do something like this. Fuck...
Link Posted: 10/10/2005 9:12:22 PM EDT

Quoted:
First off fuck MBNA  I would never have any dealings with those mother fuckers again.



Whatever you say.



And inflation has something to do with our debt Im sorry. If your cost of living was $30k a year in 95 today it would be nearly $40k and sad to say salary isnt keeping up. So to keep people go into debt, Im sorry I would much rather be $100k in debt than living in the streets.



I understand that you are sorry. Believe me. And if getting into debt that you know you cannot payoff is your idea of making a living, then you are especially sorry.

Most people simple should not have credit cards, or should keep themselves to cards with very low limits. But, people have to 'have', so tough shit. I am willing to bet that the vast majority of that outstanding credit card debt has gone to Sony and Nike, not towards groceries or whatnot.

Link Posted: 10/10/2005 9:15:34 PM EDT
Here is another article on the subject:

Minimum effort

New credit card payment rules may come as a big shock to some customers



Saturday, October 8, 2005

The final months of 2005 will be tough on some credit-card holders, as banks begin to comply with a new federal rule that requires them to increase the minimum payments customers must make on their monthly balances.

Officials say the rule is necessary because many consumers are seeing their balances increase even though they are paying the card's minimum payment - a phenomenon called negative amortization.

"We think this is good guidance because a credit card balance is a loan that is being paid off," said Kevin Mukri, a spokesman for the Office of the Comptroller of the Currency, the agency issuing the rule. "Before (consumers) may have thought they were paying off their loan, but they weren't."

By the end of this year, all bank-issued credit cards are required to have monthly minimum payments that cover interest, any fees and at least 1 percent of the principal balance. It means some consumers will have to pay more than twice as much as they do now to keep current on their credit cards.

Few will quarrel with the notion that paying off a credit card balance is a good thing. But there is concern among consumer advocates over how the new rule will affect people at the low end of the economic ladder at a time when Congress is toughening bankruptcy laws and when millions face financial hardship from hurricanes Katrina and Rita.

"It sounds good in purpose, but the most distressed people will be hurt the most," said Robert D. Manning, an economics professor at the Rochester Institute of Technology in New York and author of "Credit Card Nation."

"People who are now just making their minimum payments will get crushed," Manning said.

Since 1990, per-household credit card debt in the U.S. has more than tripled, with the average approaching $10,000 in 2005, according to CardWeb.com.

To keep business coming, banks in recent years have lowered minimum payback rates and allowed customers to finance their late fees and over-the-limit fees. The result is negative amortization.

A recent survey by the American Bankers Association showed that less than 5 percent of cardholders only pay the minimum payment each month. But Manning and other consumer advocates argue the statistic is misleading because it only counts people who always pay the minimum, excluding those who pay the minimum frequently but not always.

Neither the comptroller's office nor credit card industry representatives would offer specifics on how much minimum payments will go up, saying they will vary greatly depending on the card company and the customer.

Manning, however, said the increases will be significant in some cases. Consider, he says, a cardholder who has a balance of $5,000 and a minimum payment of $100, or 2 percent of the balance.

If the issuer raises the minimum to 4 percent, and stops allowing $39 late and over-the-limit fees to be rolled into the balance, that person's payment would go from $100 to $278.

"People may quickly find themselves in a downward spiral," Manning said.

Chris Peterson, a University of Florida law professor who specializes in consumer credit, agrees with Manning on the prospects of short-term pain, adding that some consumers will end up with long-term problems.

"I don't think the elites understand what a radical change this is," Peterson said. "There will be a real temptation for those seeing higher minimum payments to turn to fringe lenders."

Peterson is referring to so-called payday lenders, which, he says, charge an average of 474 percent interest. The payday lending industry has exploded over the last decade to the point where in some places payday loan centers outnumber McDonald's outlets, he said.

Tracey Mills, a spokeswoman for the American Bankers Association, said such scenarios will be rare since the vast majority of cardholders already pay more than the minimum payment each month.

"It will be an adjustment for some cardholders for awhile," Mills said. "But in the long run it will help them."

Yet Mills and others in the industry acknowledge banks are preparing for an increase in defaults.

Bank of America, which has already begun complying with the new rule, said in its most recent filing with the Securities and Exchange Commission that "increased minimum payment requirements will result in higher levels of consumer net charge-offs in 2005."

Mukri said the comptroller's office put a lot of thought into the prospect of increased delinquencies before deciding on the rule change, and decided things would be even worse if nothing were done.

"If there was no guidance, and the balances continued to increase, that would cause more delinquencies," he said.

Both Peterson and Manning say it is not good for consumers or the country to have negatively amortizing debt. But they argue the timing may be wrong for such a rule, especially when one takes into account the financial hit many families are taking from hurricanes and Congress' recent overhaul of the bankruptcy law.

"The fact is those folks (affected by hurricanes) who are now living on credit cards face tremendous financial challenges," Peterson said. "In addition to losing their home and car, they will be faced with paying twice the minimum payment on their credit cards."

Many credit card issuers are, for the time being, waiving late fees and finance charges for customers affected by the hurricanes. They are also granting emergency credit-line increases and allowing some to obtain payment help.

"We will continue to work with customers on a case-by-case basis," said Betty Riess, a Bank of America spokeswoman.

But the bills will eventually come due, and some of those who can't pay will be confronted with a less-sympathetic bankruptcy court.

Beginning Oct. 17, consumers seeking Chapter 7 bankruptcy, which allows people to wipe away all their debt, will first have to go through credit counseling. A credit counselor will decide, largely based on income, whether someone can go through with the bankruptcy or has to begin a debt management plan.

Those put in the debt management plan will have to pay a lump sum to the credit counselor each month, plus a $25 to $40 fee for the counselor's services.

"They want people to get more responsible and squeeze their budget," Manning said. "But for a lot of people there just isn't anything to squeeze."
Link Posted: 10/10/2005 9:18:49 PM EDT

Quoted:
Here is another article on the subject:



Are there terrorists in your house, preventing you from linking to the story, or at least attributing it to the author?

Yes, I hate the Arfcom habit of the anonymous cut-and-paste.
Link Posted: 10/10/2005 9:22:38 PM EDT

Quoted:
Holy smokes! $10K-$50K in CC debt?!?!?  WTF are people thinking?


Quoted:

Squeezing Americans Dry


Michigan State already does that to me...    They are welcome to take their 'extra' fees and stick them where it doesn't get much light any time


Clemson is the king of adding up "little" fees here and there.  Like the $500 increase per semester just to students in my college



...900 bucks in matriculation fees/ semester.  Then there is the ever-present engineering fee that juniors and seniors pay.  that 900 dollars is more money than I made this past summer.  
Link Posted: 10/10/2005 9:23:01 PM EDT

Quoted:

Quoted:
Here is another article on the subject:



Are there terrorists in your house, preventing you from linking to the story, or at least attributing it to the author?

Yes, I hate the Arfcom habit of the anonymous cut-and-paste.



Is there a bug up your butt making you a prick?
Link Posted: 10/10/2005 9:25:45 PM EDT
The increase in the minimum payment might be a good thing for some people.  Paying only the 2% monthly means that you are barely keeping pace with the interest, it takes like 50 years to pay off that way.
Link Posted: 10/10/2005 9:25:47 PM EDT
im 21, have an average monthly CC bill of $1000 and NEVER in 3.5 years of having my card have I EVER had a late payment.

I agree that anyone who pays the minimum balance isnt very bright. It is not hard to charge less than you make/can afford. If not start shopping in the canned food aisle.
Link Posted: 10/10/2005 9:30:52 PM EDT

Quoted:

Quoted:

Quoted:
Here is another article on the subject:



Are there terrorists in your house, preventing you from linking to the story, or at least attributing it to the author?

Yes, I hate the Arfcom habit of the anonymous cut-and-paste.



Is there a bug up your butt making you a prick?



Yup, I think he was the one that was jacking with me the other day
try typing the title into googlenews.com
(the googlenews.com you told me about)
how ironic it happens to be "minimum effort"
this is the first link that came up for me
www.pjstar.com/stories/100805/NAT_B7O6NI8T.027.shtml
Link Posted: 10/10/2005 9:40:07 PM EDT

Quoted:

Quoted:

Quoted:

Quoted:
Here is another article on the subject:



Are there terrorists in your house, preventing you from linking to the story, or at least attributing it to the author?

Yes, I hate the Arfcom habit of the anonymous cut-and-paste.



Is there a bug up your butt making you a prick?



Yup, I think he was the one that was jacking with me the other day
try typing the title into googlenews.com
(the googlenews.com you told me about)
how ironic it happens to be "minimum effort"
this is the first link that came up for me
www.pjstar.com/stories/100805/NAT_B7O6NI8T.027.shtml



Thank you for providing the link for our resident lazy know it all.
Link Posted: 10/10/2005 9:46:19 PM EDT
I'd bet a nickel Olyarms has a lot of credit card debt. Who's with me on that one?

Me? I occasionaly carry a balance for a month but I'm debt free. I own my house and my car and I have money in the bank.
I dont live outside my means and I have credit limits on my cards high enough I could buy a house on one of them.

Link Posted: 10/10/2005 9:49:26 PM EDT

Quoted:
Thank you for providing the link for our resident lazy know it all.



Good to see you admit that about me!

But I will continue to harp on people who post unattributed cut-and-paste jobs. At best, it is pure laziness, and generally, it is because people are embarrassed of their source. Besides all that, it is simply  poor form. You did not write the article, so give credit where credit is due; in this case, it goes to David Washburn of the San Diego Union-Tribune.





Link Posted: 10/10/2005 9:51:48 PM EDT

Quoted:
I'd bet a nickel Olyarms has a lot of credit card debt. Who's with me on that one?

Me? I occasionaly carry a balance for a month but I'm debt free. I own my house and my car and I have money in the bank.
I dont live outside my means and I have credit limits on my cards high enough I could buy a house on one of them.




I'm not worried about those that live above their means. I'm worried about those that don't have health care and have to put a medical expense on their cc, and then work to pay it off. I have a friend who is in that boat. He didn't file bankruptcy after he got a 10k plus medical bill. He is working to pay it off. He drives a POS car and doesn't eat out and spend money on non essentials. Rules like this could potentially devastate a guy like that.

I guess this is what happens when multi milionairs, and billionaires, keep running for President. Dubya has never had to worry about money ever in his life, neither has Kerry. We need a guy in the Oval Office like Reagan or Nixon who understands the lower middle class and the middle class, not the faux cowboy oligarchy we keep electing...
Link Posted: 10/10/2005 9:53:18 PM EDT

Quoted:

Quoted:
Thank you for providing the link for our resident lazy know it all.



Good to see you admit that about me!

But I will continue to harp on people who post unattributed cut-and-paste jobs. At best, it is pure laziness, and generally, it is because people are embarrassed of their source. Besides all that, it is simply  poor form. You did not write the article, so give credit where credit is due; in this case, it goes to David Washburn of the San Diego Union-Tribune.








I didn't claim to have written that article. I very rarely ever write anything on here more than a line or two...Let's not get into a comparison of laziness here, because you are going to lose...
Link Posted: 10/10/2005 10:21:17 PM EDT
Credit and inflation are linked.

All money is debt, that's where money comes from, somebody borrows it into existence.

The more money people borrow, the more money there is in circulation, and the higher prices get, particularly assets that are bought on long-term credit, like housing.

Indebtedness must continuously increase or the money supply contracts. Due to interest on the initial loan that creates the money, the money supply is always smaller than the debt incurred by it's creation. Systemic total debt cannot be repaid, it can only be rolled over or defaulted on. You can pay off your personal debt but the system itself requires a growing debt supply.

Inflation is inherent in the fiat monetary system. It never goes away. It may show up in stocks for a decade, then houses, then commodities, then stocks again, but the inflation cannot stop or the system implodes, and the debt inflation  that feeds that  price inflation cannot stop either, or the system implodes.

This is the inevitable result of making debt instruments legal tender in payment of debts. Debt as a percentage of income rises until the burden slows the economy,at which time the fed lowers rates. When the fed can no longer lower rates there is a currency crisis.

This situation creates a bias towards irresponsible behavior in government and the economy, credit driven inflation discourages savings and encourages consumption, distorts markets and results in malinvestment.

In short, there can be no free market capitalism without a free market for capital, giving a GSE like the Fed the power to fix interest rates is to abandon capitalism and embrace socialism/fascism.

Link Posted: 10/10/2005 10:26:46 PM EDT

Quoted:
I'd bet a nickel Olyarms has a lot of credit card debt. Who's with me on that one?

Me? I occasionaly carry a balance for a month but I'm debt free. I own my house and my car and I have money in the bank.
I dont live outside my means and I have credit limits on my cards high enough I could buy a house on one of them.




I rarely use credit cards, but sometimes I do (either because I am spending some large amount that might be beyond my debit card, or to get the airline miles) - but I always pay it off immediately.

Just today, I put $1900 on my citibank card.  Chemo drugs are expensive, even vetinary ones !!!  
Link Posted: 10/10/2005 10:29:02 PM EDT
Credit card companies _are_ evil, even if people are dumb about debt. It's not a mutually exclusive choice.

I think a lot of people are going to run into trouble in the next few years. Recent homebuyers are leveraged to the hilt, and if ARM rates go up, the economy tanks, or both, there will be a lot of wreckage.  Around here real estate prices are way out of whack, and I think they could plausibly drop by 20% over time, though prices tend to be sticky going down. People upside down on home loans, unemployed, and with their credit cards maxed out would not be a healthy situation. Even a fairly small percentage of people like this can have a big marginal effect on home prices since only a small part of the housing stock is for sale every year.

Fortunately I'm cash-heavy so I hope to swoop in on the ruins a few years down the road. Though it's possible my cunning plan is entirely too complex.
Link Posted: 10/10/2005 10:39:40 PM EDT

Quoted:
Credit card companies _are_ evil, even if people are dumb about debt. It's not a mutually exclusive choice.

I think a lot of people are going to run into trouble in the next few years. Recent homebuyers are leveraged to the hilt, and if ARM rates go up, the economy tanks, or both, there will be a lot of wreckage.  Around here real estate prices are way out of whack, and I think they could plausibly drop by 20% over time, though prices tend to be sticky going down. People upside down on home loans, unemployed, and with their credit cards maxed out would not be a healthy situation. Even a fairly small percentage of people like this can have a big marginal effect on home prices since only a small part of the housing stock is for sale every year.

Fortunately I'm cash-heavy so I hope to swoop in on the ruins a few years down the road. Though it's possible my cunning plan is entirely too complex.




When attempting to catch a falling knife, it's best to be cautious. A 20% drop in housing prices nationwide would cause a depression, and very likely further price drops. Once a deflationary spiral begins it's very difficult to stop.

Link Posted: 10/11/2005 12:23:24 AM EDT
I'm at ground zero for the overvalued housing market, so national prices might well not drop as much. Overall there are still plenty of people with enough equity in their houses to ride something like that out. A 20% drop would (around here) put prices back to about that of two years ago, so as a rough approximation it would only be those people who bought in the last two years with a lot of exposure.

As I said, I could be wrong--too much of my cunning plan involves several unpredictable events happening in sequence. But since I can't afford a house at current prices anyway my cunning plan and necessity coincide, and I'd be doing the same thing in any case.
Link Posted: 10/11/2005 7:07:30 AM EDT

Quoted:
I'm at ground zero for the overvalued housing market, so national prices might well not drop as much. Overall there are still plenty of people with enough equity in their houses to ride something like that out. A 20% drop would (around here) put prices back to about that of two years ago, so as a rough approximation it would only be those people who bought in the last two years with a lot of exposure.



Exactly.

Most people should NOT be harmed by a collapse of an overvalued housing "bubble"

But, BECAUSE so many American households have been spending more than they actually make, many have been financing that spending with second mortgages or refinancing loans that take equity out of their house.  So if housing prices do fall, a huge number of people are going to be upside-down on their houses - NOT because of some unlucky freak event, or because anyone is evil - but because they are idiots.
Link Posted: 10/11/2005 7:26:47 AM EDT
I keep seeing people (TRASH) driving nice cars (leased) and living in areas that historically they couldn't afford (Thank you, ARMs!) and all the commercials on TV for debt financing and consolidation...

Something's gotta give. What happened to how it was in the 70s and early 80s? I remember it being a downright shame if you had to take out an equity line or 2nd mortgage just to pay off your debt. It meant you weren't smart enough to think for yourself. Now it's an institution, and of course, "it's not your fault!"

Gah. I am so glad I pay my cards off every month and haven't extended myself on my home. I won't overextend myself on the next home either... (gotta move soon, I'm too close to Detroit)
Link Posted: 10/11/2005 7:41:26 AM EDT

I'm 25, and have never had a credit card.  I have a debit card which comes directly out of my checking account.  I am in about $12k debt right now on an auto loan I took out in June, and on which I have already made nearly two extra payments in five months.

Financial discipline will get most people through the hard times, IMO.

Link Posted: 10/11/2005 7:48:19 AM EDT

Quoted:



Worse yet, for consumers making credit card payments, the US Treasury has new regulations that will come as a real shock this fall. The Treasury has the authority to set minimum principal payments on credit cards and is increasing the minimum from 2 to 4 percent per month. For the average American with a $10,000 credit card balance, that increases the minimum monthly payment from $200 to $400. For the big spender with $50,000 in credit card debt, the monthly payments would pop from $1,000 to $2,000! Needless to say, a large number of people are used to paying the minimum every month, and millions of card holders are maxed out on numerous cards and barely meeting monthly payments. So, even if prices weren't rising, the American debtor will be getting hung out to dry by a noose of credit cards around their neck.




I was worried that this would happen, with the CC industry writing the new Bankruptcy law, that they would turn around and have their lackeys in .gov do something like this. Fuck...



Yep. There's a plan in action there. Get bankruptcy laws tightened, then squeeze the consumers for higher payments - when they can't keep up, jack their interest rates on their CCs. To believe there were people even on this board that thought the change in the law would benefit consumers. LOL. The vast majority are about to get hosed.

The change in bankruptcy law had NOTHING to do with protecting ANY consumers. It was all about protecting the bank's interests.
Link Posted: 10/11/2005 7:52:41 AM EDT
While I am affected by rising prices of everything I have always lived well within my means.  Therefore, the affect is irritating but marginal.  Most Americans allowed themselves to believe that you could live right up to, or often, beyond your means.  Hey, that's what credit cards and interest-only loans are for, right?  Now it's time to start ponying up for all that unearned money.  

I don't feel sorry for people who are crashing and burning in most cases.  In fact, I'm ready for the foreclosure sales.  I'm ready for people to start selling their toys at huge losses.  I don't owe a single dollar in debt.  I don't feel a bit sorry.  None of these lessons are anything new.
Link Posted: 10/11/2005 8:25:00 AM EDT

Quoted:

Quoted:



Worse yet, for consumers making credit card payments, the US Treasury has new regulations that will come as a real shock this fall. The Treasury has the authority to set minimum principal payments on credit cards and is increasing the minimum from 2 to 4 percent per month. For the average American with a $10,000 credit card balance, that increases the minimum monthly payment from $200 to $400. For the big spender with $50,000 in credit card debt, the monthly payments would pop from $1,000 to $2,000! Needless to say, a large number of people are used to paying the minimum every month, and millions of card holders are maxed out on numerous cards and barely meeting monthly payments. So, even if prices weren't rising, the American debtor will be getting hung out to dry by a noose of credit cards around their neck.




I was worried that this would happen, with the CC industry writing the new Bankruptcy law, that they would turn around and have their lackeys in .gov do something like this. Fuck...



Yep. There's a plan in action there. Get bankruptcy laws tightened, then squeeze the consumers for higher payments - when they can't keep up, jack their interest rates on their CCs. To believe there were people even on this board that thought the change in the law would benefit consumers. LOL. The vast majority are about to get hosed.

The change in bankruptcy law had NOTHING to do with protecting ANY consumers. It was all about protecting the bank's interests.



Most bank stocks are public.

That being said, I am hardly a banner waving fanatic of the bankruptcy reform. I find it quite perplexing that the banks would run crying to GWB over an issue tht they could simply control themselves -- YOU WANT TO PROTECT YOUR INTERESTS, STOP ISSUING CARDS WITH HIGH BALANCES TO PEOPLE WHO CANNOT AND WILL NOT PAY THE BILL!!
Link Posted: 10/11/2005 8:46:08 AM EDT

Quoted:

Quoted:



Worse yet, for consumers making credit card payments, the US Treasury has new regulations that will come as a real shock this fall. The Treasury has the authority to set minimum principal payments on credit cards and is increasing the minimum from 2 to 4 percent per month. For the average American with a $10,000 credit card balance, that increases the minimum monthly payment from $200 to $400. For the big spender with $50,000 in credit card debt, the monthly payments would pop from $1,000 to $2,000! Needless to say, a large number of people are used to paying the minimum every month, and millions of card holders are maxed out on numerous cards and barely meeting monthly payments. So, even if prices weren't rising, the American debtor will be getting hung out to dry by a noose of credit cards around their neck.




I was worried that this would happen, with the CC industry writing the new Bankruptcy law, that they would turn around and have their lackeys in .gov do something like this. Fuck...



Yep. There's a plan in action there. Get bankruptcy laws tightened, then squeeze the consumers for higher payments - when they can't keep up, jack their interest rates on their CCs. To believe there were people even on this board that thought the change in the law would benefit consumers. LOL. The vast majority are about to get hosed.

The change in bankruptcy law had NOTHING to do with protecting ANY consumers. It was all about protecting the bank's interests.




Not true - it DOES protect the good consumers, by making them less likely to bear the cost of the bad consumers.  
Link Posted: 10/11/2005 8:48:19 AM EDT

Quoted:

Quoted:

Quoted:



Worse yet, for consumers making credit card payments, the US Treasury has new regulations that will come as a real shock this fall. The Treasury has the authority to set minimum principal payments on credit cards and is increasing the minimum from 2 to 4 percent per month. For the average American with a $10,000 credit card balance, that increases the minimum monthly payment from $200 to $400. For the big spender with $50,000 in credit card debt, the monthly payments would pop from $1,000 to $2,000! Needless to say, a large number of people are used to paying the minimum every month, and millions of card holders are maxed out on numerous cards and barely meeting monthly payments. So, even if prices weren't rising, the American debtor will be getting hung out to dry by a noose of credit cards around their neck.




I was worried that this would happen, with the CC industry writing the new Bankruptcy law, that they would turn around and have their lackeys in .gov do something like this. Fuck...



Yep. There's a plan in action there. Get bankruptcy laws tightened, then squeeze the consumers for higher payments - when they can't keep up, jack their interest rates on their CCs. To believe there were people even on this board that thought the change in the law would benefit consumers. LOL. The vast majority are about to get hosed.

The change in bankruptcy law had NOTHING to do with protecting ANY consumers. It was all about protecting the bank's interests.



Most bank stocks are public.

That being said, I am hardly a banner waving fanatic of the bankruptcy reform. I find it quite perplexing that the banks would run crying to GWB over an issue tht they could simply control themselves -- YOU WANT TO PROTECT YOUR INTERESTS, STOP ISSUING CARDS WITH HIGH BALANCES TO PEOPLE WHO CANNOT AND WILL NOT PAY THE BILL!!



Take that all the way down to the consumer level and you have to say, "If you can't afford it, don't buy it.  Credit cards are not free money."  For all the talk about personal responsibility on this board there sure are a lot of folks crying when it comes to finances.  Now that should trigger the people who ask, "What about medical expenses?"
Link Posted: 10/11/2005 8:55:48 AM EDT

Quoted:
Holy smokes! $10K-$50K in CC debt?!?!?  WTF are people thinking?


Quoted:

Squeezing Americans Dry


Michigan State already does that to me...    They are welcome to take their 'extra' fees and stick them where it doesn't get much light any time


Clemson is the king of adding up "little" fees here and there.  Like the $500 increase per semester just to students in my college




AARRRGGGHHHHHH. Don't get me started on fees that have ablsolutely NOTHING to do with education. Like 300.00 for a credit to eat food from a campus establishment.

HOWEVER- I am about 6 weeks away from writing the last of 16 post secondary payments for two offspring. Hold it! Did you feel a disturbance in THE FORCE? That's the friggin' Black Hole of Finance finally squeezing shut.
Link Posted: 10/11/2005 8:57:38 AM EDT
Dont worry, go on line and buy 1000 shares of PRAA.
Link Posted: 10/11/2005 9:05:25 AM EDT

Quoted:
Fortunately I'm cash-heavy so I hope to swoop in on the ruins a few years down the road. Though it's possible my cunning plan is entirely too complex.



+1

I have enough equity that I have built in the last two
years to pay off all of my debts (student loans, truck,
etc). I'm thinking of bailing out, renting, and waiting for
the impending crunch.
Link Posted: 10/11/2005 9:34:33 AM EDT
This is going to do more to hurt oue economy than people realize. Our economy runs on debt. ,I am not saying this is a good thing, but it does. people are not going to spend as much on  alot of different things ,wich will cost jobs in the future. With the high price of fuel and rising inflation we could be heading for a pretty serious rescession. The bankruptcy law has good points and bad points, but it does nothing to help the average or "good" consumer. The law is not going to lower interest rates for people who pay there bills on time. Sure people should not charge them up, but they should not give them to people with bad credit. I mean when someone declares bankruptcy they give them a credit ap. the next day, what the hell do they expect? Credit has gotten way to easy to get, back in the 80's it was impossible to get a credit card . now they give them to anyone that can sighn there name.
Link Posted: 10/11/2005 9:36:24 AM EDT
I ran into a huge credit card problem.  I recently did a lot of research on credit.  I'm working my way out of debt and will now be using them to my advantage and NOT to the banks advantage.
Link Posted: 10/11/2005 9:37:44 AM EDT
The article fails to point out the obvious fact - we did this to ourselves.  The "fault" doesn't lie with inflation or the credit card companies (or GWB) - it lies with the average American.  As a country, our rate of savings is zero.  We've become a nation in which the average person thinks he/she is "entitled" to a TV, nice car, nice house, X-box, computer, high speed internet, etc...    People no longer think that living within their means (or, gasp, below their means) is required.  Our "gotta have it now" consumption lifestyle has only been made possible by the infusion of something like 4 billion dollars from China into the US every day.  Try picking up a copy of "Running on Empty" by Peter Peterson to see the magnitude of the economic crisis that's facing this country in the near future.  
Link Posted: 10/11/2005 9:41:53 AM EDT

Quoted:

Quoted:

Quoted:
We should sticky this one.  Credit cards are evil.



No, they are not. Retards who look at them as free money cause the problems, not the credit cards themselves.


Being I carry a zero balance and quite a few credit cards. I can say your wrong on that. Not all people who carry a balance ar morons. However quite a few have simply come on hard times, not sure if you have noticed but we have a inflation problem in our country. It is increasing the debt of many rapidly.

But hey yeah, lets call them all retards.




Nice excuse making, there... I'll say this much - odds are good that anyone who would say of themselves:


"I AM SO FREAKING AWESOME"


... is probably atleast semi-retarded, anyways... JMHO,


 - georgestrings
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