Small-Business-Blog.com

For the past weeks, I have spoken about my concerns and the effects of the credit crunch along with a much weakening dollar. All of these factors impact our daily lives as workers, consumers, and caretakers of our families.

But for those with private debt (which would be a majority), these factors loom large on our ability to improve on, or even keep the status quo on our daily existence. I have recently spoken to several local small business owners who are now impacted in their personal lives for loans they have made against their personal equity – in their homes or other assets. Now with an uncertain economy, the ability to repay may impact their ability to hold on to those personal assets. So many are disconcerted, depressed, even panicking.

Debt is deeply ingrained as patterns to keep you hooked into sustaining the financial system so others can benefit, not you ultimately. Trust your wisdom on these happenings. Observe. Trust your sense of disconnection from these old patterns of greed and deception. Question the mass media hype of things like Big Government coming to your aid - “Fed Cuts” solving market problems. These are designed to keep money in the system and money in your bank accounts. Instead, go with what your intuition based thinking tells you. Do you know truth from fiction?

Where are we at Today?

To separate your truth from what is being told to you; let’s look at how well we have been inundated with “easy money”, the ability to live beyond our true means etc. With all this ‘easy’ money, debt grows as if there were no real consequences to borrowing, and no limit to what can be paid back in the future.

I will comment on the American situation because I have lived in it my entire life – so my apologies to Ellie’s foreign readers. But private debt vis a vis banks behaves the same way in every country.

When I grew up in the 60’s, there was a spirit embodied by leaders such as John F. Kennedy that Americans could work within a framework of innovation with trust and honesty. I truly considered it the ‘richest nation on earth’, a country that could make a difference with other proud nations. The sad reality is that the American people today are living on borrowed money fostered by greed – this is our programming in a heavily debt oriented society.

There is not one sector in the U.S. that has shown any measure of refrain. Government, corporate, and consumer debt are all at record levels. Private debt, which is debt from a private entity, such as a bank, has skyrocketed in the last three decades alone.

The Real Facts

Here are a few tidbits gleaned from the Mother Jones magazine article on U.S. Debt:

In 1970, 51% of Americans had a credit card, compared with 93% today. The average cardholder has 7 cards.

Americans owe $850 billion in credit card debt. The world’s 54 poorest countries owe $412 billion in foreign debt.

A “preferred customer,” according to one MasterCard vice president, is someone with a “taste for credit” who’s “willing to make minimum monthly payments—forever.”

60% of Americans have been in credit card debt for more than a year.

The average U.S. household owes $9,659 on its credit cards.

If you owed that much on a card with a 14% APR (the average interest rate) and made 2% monthly payments, it would take you more than 6 years to pay off—and you’d pay $4,922 in interest.

1/3 of Americans claim they pay off their credit card bills in full every month.

Inside the credit card industry, these customers are known as “30-day wonders” or “deadbeats.”

The average American household spends 14% of its disposable income paying off debts. It puts negative 0.5% into savings.

Last year, banks sent out 8 billion credit card applications, a 30% increase since 2005. Credit card companies spend an average of $58 to sign up a new customer.

Credit card companies earned $90.1 billion in interest last year. They earned $55.2 billion in fees.

So we see that the U.S. is more leveraged by private debt than ever before. According to the Family Income Report, we have the lowest rate of saving since 1929, the year of the Great Depression.

A Coming Depression?

I have spoken for several weeks on factors that could produce a Perfect Storm – of the financial crisis kind. With the credit bubble, real estate bubble, weakening value of currency, and declining buying power of the U.S. consumer, we also have DEBT problems of the magnitude that were present in the Great Depression.

If a Recession or even a Depression begins, it will be more difficult for households to come out unscathed, and much more difficult for people to recover.

What Can We Do?

The first should be obvious - do everything you can to minizimize your debt. There are many web sites that can help you do that as a strategy (“Google” on ‘minimize your debt’). You may want to re-think assets as a way to eliminate the debt and start cleanly.

Now, I am not an investment advisor and this article is not investment advice, but commentary only. I can only lay out some of the opportunities that exist in today’s market that might be worth your time to investigate.

If it is true that financial markets liquidate, and real estate is already liquidating, then a simple strategy is to be liquid.

Muse on whether the following might resonate: it might not be so bad to park some cash, perhaps some of it in foreign currencies that are strong and stable (Swiss?).

Here are some other tips from Chris Laird of Prudent Squirrel :

*When the US real estate market (and the other real estate bubbles everywhere) drops by perhaps half or more in 2 or 3 years, consider buying property again. The same holds for stocks.

*Suppose that you like ABC stock. After the stock declines, you can buy back into ABC for perhaps half what it is now. I All stocks will go down if there is a world recession. Maybe gold stocks would do well after the initial stock drops.

*But, in any case, consider that many stock indexes are at all time highs, and a major correction is due anyway. If the market is bear, then being liquid is a risk free strategy.
In any case, you don’t have to get rid of all stocks or such. But you could move a portion to cash and see what happens. You might be happy having done that.

*One thing about the USD and stock markets is that they can both still hang in there for a while. But the odds appear to be well in favor of major stock corrections emerging this year anyway.

Can’t Find What You Want? Try GOOGLE!

Enter your search terms Submit search form