Posted on 06/01/2008 6:11:10 PM PDT by shrinkermd
...As consumers max out their credit lines and banks clamp down on lending, many older and middle-class Americans are resorting to pricey, often-risky alternatives to stay afloat. Some are depleting their retirement accounts, tapping 401(k)s for both loans and hardship withdrawals. Some new fast-cash options allow homeowners to squeeze equity from their houses -- without the burden of monthly payments. One new product offers a one-time payment. In exchange, the company gets up to 50% of any future change in the property's value, typically collecting its share when the house is sold.
Americans are resorting to these more extreme measures due to the combination of dwindling jobs, falling home prices, shaky credit markets and a sharp run-up in food and energy prices. Consumer confidence hit a 28-year low in May, according to the latest Reuters/University of Michigan survey of consumer sentiment. Consumer spending and income inched up 0.2% in April from March, but after adjusting for inflation were flat, government data show.
In March, consumers had a record $957 billion of credit-card and other types of revolving debt outstanding -- up about 8% from a year earlier, according to preliminary data from the Federal Reserve.
But businesses are reporting greater demand for newer cash-raising techniques. Reverse mortgages are gaining new favor. Secured by a home's equity, this vehicle can provide consumers with a lump-sum payout, a line of credit, periodic payments or a combination thereof.
Also flourishing: niche products that quickly unlock the value of a particular asset. Life settlements, once marketed mainly to the wealthy, have grown in popularity as companies target smaller policies...
(Excerpt) Read more at online.wsj.com ...
I have noticed that the number of credit card offers I get in the mail has decreased by a couple of pounds a week.
And things are going to get much worse.
...but there’s no sign of inflation...
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Wait till next winter!!! Heating oil over $5 a gallon!!! Over double from this past winter. Catastrophe!!!!
I don’t see any “dwindling jobs.” There are Help Wanted signs all over out here.(SW Pennsylvania) Even the little local newspaper has plenty of jobs.
If people can not make ends meet today while they are still working what are they going to do when it comes time to retire and they have spent their retirement money?
If I was to give anyone one piece of advise it would be do not, I repeat, do not touch your retirement money. If you do, prepare for a very unhappy future.
What a POS article from the WSJ. Our economy has slowed, there’s no doubt about that but we are not in a recession. People need to change their habits to adjust to some realities but if you read articles like this you would think things are far worse.
>In exchange, the company gets up to 50% of any future change in the property’s value, typically collecting its share when the house is sold.<
Now there’s an idea. Sign on now, get the cold cash in your hand before your house drops anymore in value. Then when it rises read the fine priont and find out that you MUST sell your home because it went up in value.
I dropped my subscription. I loved the WSJ for years and years -- but they've gone to the dark side: news, editorials and cultural coverage are all more leftwing than I care for.
If energy prices continue to escalate and the Democrats and RINOs, modern day alchemists attempting to turn carbon into gold, pass their schemes to pressure utility prices higher and higher, we are going to have previously middle class citizens living on fixed incomes choosing between heating and eating.
Times must be rough. The RNC is still calling and whining about how broke they are. I laugh and say, “Really? Borrow some cash from Exxon or the Saudis.”
Well, i'm not agreeing about the economy being in bad shape - but more people are "maxing out their accounts and spending like there's no tomorrow" because they have to.
Everything is more expensive - and w/ so many living paycheck to paycheck - they're getting caught... they don't have room for a doubling in energy costs, increases in import prices, and a significant increase in food costs. The cash ain't there.
just sayin....
Many, if not most, people don’t know how to live within their means. Too many Americans are addicted to easy credit like a junkie is addicted to heroin. Rising home prices and home equity loans gave them the illusion they were rich. Now that illusion is gone and they are way over their heads in debt. Plentiful jobs means little in this circumstance. Once you have maxed out your credit cards, you are working for the bank.
The Wall Street Journal has changed/is changing. It is becoming more liberal and more sensational in nature. Wtch this trend continue under Murdoch’s new ownership.
Right on - you said what I was trying to say much better.
Please pardon my re-paragraphing of this section:
Americans are resorting to these more extreme measures due to the combination of dwindling jobs, falling home prices, shaky credit markets and a sharp run-up in food and energy prices.Consumer confidence hit a 28-year low in May, according to the latest Reuters/University of Michigan survey of consumer sentiment.
But I wanted to put emphasis on very separate issues. The author linked the the broader economy and consumer confidence together. They are not inextricably related. Credit card use has not abated, yet. I might joke here about wild-eyed people spending money like crazy. But i dare not.
Methinks that things economic may get very strange towards November. OPEC and wealthy oil speculators want to make money while the sun shines. OPEC is going to tie oil to the Euro. Sooner rather than later. Hard times may be coming round the bend . . . Or, not. Whatever.
I put a new report from The Economist on my Freeper page. It was about home prices falling. But somebody's bad news is always somebody else's good news. If you get my drift . . .
Bingo. The fact that a significant majority of folks are uneducated at personal finance is a big black mark against the public education system, which often is more interested in sowing sexual confusion and feelings of cultural and racial Balkanization amongst its students than actually teaching useful, practical things...that will enable American students to compete in the global economy.
(More generally, American students are fairly ignorant of business and accounting in general, which I guess explains why an alarmingly high number of folks are buying into the notion that the oil companies are conspiring and actively price gouging.)
Admittedly, though, managing one's finances in twenty-first century America is more complex (an understatement!) due to the rapid explosion of different credit instruments, including credit cards, HELOCs, student loans, ARMs, and such.
Too many Americans are addicted to easy credit like a junkie is addicted to heroin.
Credit, when used properly, is not a bad thing. The problem with the housing bubble (tulip mania) is that people did not use credit properly.
Rising home prices and home equity loans gave them the illusion they were rich.
Folks made forward bets, whether they realize it or not. They bet that stable, relatively low energy prices and interest rates, lax lending standards, and indefinitely rising personal incomes and housing prices.
Some lost, some won. And the cycle will continue.
Now that illusion is gone and they are way over their heads in debt.
It's all about the types of debts incurred. You generally incur debt to obtain assets that are productive or appreciate in value (such as a useful education, a reasonably priced car to get to work, a house to live in). Short-term debt (such as that incurred on credit cards) can be used to finance short-term obligations and improve cash flow while you are waiting for receivables (such as your paycheck).
Too many folks borrowed without planning and for non-productive or depreciating purposes.
Once you have maxed out your credit cards, you are working for the bank.
Only if your finance charges are above the inflation rate. Still, holding debt at less than inflation rate can destroy your cash flow if not managed properly, due to the ongoing payments and the reduced ability to absorb shocks (such as the present spike in energy and food prices).
As a side note: Dave Ramsey's methods are not a financial panacea, but for most folks, they are fairly effective and easy to understand.
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