What are hard working Americans who have scrimped and saved and have done everything “right” financially for decades supposed to think about all of these “bailouts” and of the massive financial mess in Washington? How are people who have handled their own finances admirably supposed to feel now that the foolishness of others is leading us all towards a horrific economic collapse? Well, a reader named “Mae” recently left a comment that I think does a good job of communicating what a lot of hard working Americans are feeling right now: My situation is this – we have lived our lives playing by the rules: never carried debt on a credit card that we couldn’t pay off by the due date. If we couldn’t afford the item, we didn’t buy it. We always had a Christmas Club which enabled us to pay cash for the holiday. We payed ourselves first after every paycheck whether it was $10 or $100, whatever we could afford. We made double payments on our mortgage when we could which helped us to pay off our modest home 10 years early. We knew that we couldn’t afford to “have it all” so we made our choices early on and stuck with it. We sacrificed the fancy vacations in order to do large home repairs (like a new roof) ourselves. We didn’t buy expensive cars and now own one outright and carry a small loan on another. That’s our only debt besides monthly bills. We chose jobs that provided health care benefits. We did everything right…we saved and saved and saved to have a decent retirement but of course last year took half the value of our 401k.
Now, I’m expected to sit back and watch Bush, Congress and Obama bail everyone out because they didn’t have the fiscal discipline to manage their money?? I’m supposed to feel bad for people who bought homes they couldn’t afford? or cars they couldn’t pay for? or $1000 cell phone bills? or $20,000 in credit card debt? HELL NO! I’m livid! If I ran my checkbook the way Washington is running the national checkbook, I’d be thrown in jail!
All we can do now is educate as many people as possible about what is happening and hopefully vote all these s.o.b.’s out of office and replace them with fiscally conservative candidates who will vote for term limits. The days of a career politician are over. I don’t know if we can turn any of this around – it will take a lot of hard work to make the tough decisions, but they have to be made if we’re to survive. How many people have the guts to work through this? Not many…we’ve become a spoiled, selfish, arrogant and hypocritical nation with no spine.
Starting on Monday, the unemployed in the U.S. will no longer be able to apply for federal unemployment benefits or the COBRA health insurance subsidy. This means that millions of Americans that have been unemployed for a long period of time may suddenly find themselves without an unemployment check and without any health coverage. You see, normally state-funded unemployment benefits last for about 26 weeks. After that, federal unemployment benefits kick in. During this recent economic crisis, the U.S. Congress has approved up to an additional 73 weeks of unemployment benefits for unemployed Americans. But now the U.S. Senate has not approved an extension, and so now millions of unemployed Americans that are relying on federal unemployment benefits will stop getting checks once their current federal benefits run out. Millions more will not be able to apply for federal unemployment benefits.
So what could this mean?
It could mean that large numbers of Americans may soon be forced into bankruptcy.
It could mean that large numbers of Americans may soon lose their homes.
It could mean that large numbers of Americans may soon be devastated by medical bills they simply cannot pay.
It could mean that large numbers of Americans may soon be forced to live in the streets.
But should we expect the federal government to pay long-term unemployment benefits for all unemployed Americans indefinitely?
That gets really expensive very quickly. Considering the fact that the U.S. national debt is growing exponentially, the U.S. government cannot really afford to be throwing around cash as if it was water.
But with millions upon millions of Americans completely broke and unable to find jobs, what else can you do?
The reality is that it is extremely likely that the U.S. Congress will find a way to come to an agreement to extend these benefits at some point in the coming days.
On Wednesday, Federal Reserve Chairman Ben Bernanke warned Congress that the Federal Reserve does not plan to “print money” to help Congress finance the exploding U.S. national debt. In fact, Bernanke told Congress that the U.S. could soon face a debt crisis as bad as the one in Greece if the U.S. government does not get things in order financially. This represents a fundamental change in policy for the Federal Reserve, because they have been enabling the massive borrowing by the U.S. government over the past couple of years by “buying” the majority of new U.S. government debt that has been issued. But now the fat cats over at the Federal Reserve have apparently changed their minds. Using uncharacteristic bluntness, Bernanke told Congress that the Federal Reserve is “not going to monetize the debt”.
So why is the Federal Reserve changing course?
Well, there are a couple of possibilities. One is that the Federal Reserve could legitimately be concerned that the exploding U.S. debt could actually collapse the U.S. economy and ultimately the U.S. government.
You see, the Federal Reserve is a parasite. They make money for their owners by sucking money out of the U.S. government and out of U.S. taxpayers. So, just like any parasite, they must strike a delicate balance. They have to keep feeding off the host without killing off the host completely. If the host dies it could end up killing the parasite. So the Federal Reserve actually needs to try to keep the U.S. economy alive so that it can slowly keep draining it.
In fact, during his remarks to Congress, it certainly sounded like Bernanke honestly desires that the U.S. government will come up with a sustainable financial plan for the future….
“It is very, very important for Congress and administration to come to some kind of program, some kind of plan that will credibly show how the United States government is going to bring itself back to a sustainable position.”
The second possibility is a bit more insidious. As we have written previously, it looks like “the financial powers that be” have decided to reduce the money supply, tighten credit and hoard cash. All of those things reduce economic activity.
This new public stance by Bernanke is right in line with that. If the Federal Reserve will not finance the exploding U.S. government debt, then either the U.S. government will have to dramatically cut back on spending (which would seriously slow down the U.S. economy) or the U.S. government will have to borrow from other sources at much higher interest rates (which will have very serious negative effects on the U.S.. economy). Either way, this new stance by the Federal Reserve is not good news for those hoping for U.S. economic growth.
The truth is that someday the exponential growth of the U.S. national debt will basically force the Federal Reserve to “print money”, but for now it looks like the financial powers have another agenda.
From all indications, it look like that agenda is seriously going to slow down the U.S. economy.
That is likely to seriously anger American voters. Already, millions of Americans have lost their homes and their jobs, and things are probably only going to get worse.
The result is that there is likely to be an overwhelmingly strong anti-incumbent mood in the nation as we approach the election season of 2010. Even now, only 10% of American voters say that Congress is doing a good or excellent job.
That is not good news for the fat cats in Washington.
Not that we should feel sorry for them when they get voted out.
Anyway, as always we welcome your comments. If we do not publish your comment right away, don’t be discouraged, because sometimes we hold on to a comment for a bit because we want to figure out a way to feature some of the very best comments in a future article.
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Is the United States economy headed for another Great Depression? Well, according to Barack Obama, that is no longer possible. According to Obama, the United States has avoided an economic collapse and is headed for another wonderful era of growth and prosperity. But is Obama right? Do the economic signs indicate that the U.S. is headed towards recovery or towards even more difficult times? As you shall see below, there is no way in the world that Barack Obama should have ever said that “a second depression is no longer a possibility”. In fact, as the U.S. financial system continues to crumble, it is likely that those words will be exploited by his political adversaries again and again. If you are a politician and you are going to issue a guarantee, you had better be able to deliver the goods. In this case, Obama is making a promise that defies all of the economic data.
Video of Obama making his declaration that “a second depression is no longer a possibility” is posted below….
So why is Obama wrong? Well, if you want a full examination of why the United States is headed for an economic collapse, please read the rest of this blog. In this article we just wanted to highlight a few of the reasons why the U.S. is headed for a complete financial meltdown….
#1) The U.S. housing market is continuing to come apart like a 20 dollar suit. The U.S. government just announced that in January sales of new homes plunged to the lowest level on record. This is not a sign that the U.S. economy is recovering.
#2) In fact, a lot more houses may be on the market soon. The number of U.S. mortgages more than 90 days overdue has climbed to 5.1 percent. An increasing number of Americans find themselves simply unable to keep up with their mortgages. This is another indication that things are getting worse instead of better.
#3) Over 24% of all homes with mortgages in the United States were underwater as of the end of 2009. So in other words, nearly one out of every four U.S. homeowners with a mortgage owe more on their homes than the homes are worth. That is a giant mess, and it is going to be very painful to untangle it.
#4) If all of that wasn’t bad enough, a massive “second wave” of adjustable rate mortgages is scheduled to reset beginning in 2010. The “first wave” of mortgage resets from 2006 – 2008 absolutely crippled the U.S. housing market, and this second wave threatens to make things far worse.
#5) Confidence among U.S. consumers fell dramatically in February to the lowest level in 10 months. Consumers that are not confident in the economy tend to hold on to their money. If consumers don’t spend their money then the economy is not going to grow.
#6) Many analysts are predicting that the next “shoe to fall” in the ongoing financial crisis will be commercial real estate. U.S. commercial property values are down approximately 40 percent since 2007 and currently 18 percent of all office space in the United States is sitting vacant.
#7) In fact, the commercial real estate sector is just now entering the danger zone. It is projected that the largest commercial real estate loan losses will be experienced in 2011 and the years following. Some analysts are estimating that losses from commercial real estate at U.S. banks alone could range as high as 200 to 300 billion dollars. To get an idea of how rapidly commercial real estate loans are turning sour, just check out the chart below….
#8) All of these bad loans are causing banks to dramatically slow down real estate lending. During the middle of the decade, the number of commercial real estate loans exploded, but now the bubble has burst, and as the chart below reveals, commercial real estate lending has dropped through the floor….
#9) All of these real estate problems are decimating America’s small and mid-size banks. The FDIC has announced that the number of banks on its “problem” list climbed to 702 at the end of 2009. This is compared to only 552 banks that were on the problem list at the end of September and only 252 banks that were on the problem list at the end of 2008. As you can see from these figures, the banking crisis in the U.S. is escalating rapidly.
#10) The U.S. national debt is now over 12 trillion dollars and it is rising at a rate of about 3.8 billion dollars per day. In fact, some analysts are projecting that the United States will borrow more money in 2010 than the rest of the governments of the world combined.
#11) The financial mess in the U.S. is scaring off other nations from buying U.S. government debt. In fact, the Federal Reserve now has to “buy” most U.S. government debt because others are extremely hesitant to purchase the massive amount of bad paper the U.S. is trying to sell. In addition, other countries are now using the massive amounts of U.S. government debt that they already hold as leverage. A major U.K. newspaper is warning that evidence is mounting that recent Chinese sales of U.S. Treasury bonds are intended as a warning to the United States government rather than simply being part of a routine portfolio shift.
#12) But the U.S. is not the only economy that is suffering during this economic downturn. The entire world economy has been impacted. The World Trade Organization has announced that world trade fell by 12% last year as the world economic crisis caused the biggest drop in world trade since 1945.
#13) The United States should not expect the rest of the world to pick up the economic slack either. The crisis in Greece has made headlines all over the globe recently, and Harvard University Professor Kenneth Rogoff is warning that we could soon see a huge wave of sovereign defaults.
#14) The reality is that things are so bad in some parts of Europe that it could take years and years to recover. In fact, the chief economist of the International Monetary Fund is warning that financial “belt-tightening” in Europe will be “extremely painful” and could take up to 20 years. The truth is that if Europe is suffering economically, it will be very difficult for the U.S. to recover at the same time.
This is how the U.S. economy works much of the time – the wealthy make most of the big economic mistakes but the hard working middle class ends up paying for them. This time around is no exception. The financial crisis of the past several years was caused by Wall Street, but they got bailed out and relatively few of them lost their jobs. However, even though middle class and working class Americans were not the ones who made the mess, they are paying for it dearly. This is especially true when it comes to unemployment. While it is true that jobs are being lost on every level of American society, the reality is that unemployment is hitting Americans on the lowest end of the income scale the hardest.
Just check out the chart below. The ten percent of Americans that have the lowest household incomes have an unemployment rate of over 30 percent, while the ten percent of Americans that have the highest household incomes have an unemployment rate just about 3 percent….
Does this seem right to you?
After all, we were promised that we needed to bail out Wall Street so that they could help “Main Street”.
But that didn’t happen, did it?
Instead, it appears that previously bailed out corporations are going back to their old ways of paying out ridiculous bonuses.
For example, the CEO of General Motors is in line to get a $9 million pay package.
What in the world?
A company that was so flat broke that it would have likely collapsed without U.S. government intervention is handing out 9 million bucks to the CEO?
Something is very, very wrong.
And the truth is that working class Americans are getting pissed off.
Most Americans seem to be under the impression that the millions of Americans who have lost their jobs over the last few years will soon be going back to work as the U.S. economy recovers. But that is not going to happen. In fact, even Barack Obama, the Federal Reserve and the New York Times are all admitting that millions of unemployed Americans are not going back to work any time soon – and they are some of the biggest optimists regarding the long-term prospects for the U.S. economy. Many are calling this a “jobless recovery”, but what we are experiencing right now is not a “recovery” at all. Rather, we are currently in a “lull” in the economic storm. All of the “bailouts” and “stimulus packages” have stabilized the U.S. economy for now, but they have made our long-term debt problems far worse.
So what does that mean?
It means that eventually millions and millions more Americans will lose their jobs.
So don’t count on the millions of Americans who are currently unemployed going back to work any time soon.
Even the most important newspaper in the United States (the New York Times), the most important financial institution in the nation (the Federal Reserve) and the president of the United States (Barack Obama) all say that the employment situation is not going to improve for quite some time….
*Barack Obama’s most recent budget proposal projects that the U.S. unemployment rate will remain at about 10% in 2010. Of course we all know that the current official unemployment rate of approximately 10% is actually more like 18-22% in reality.
*The Federal Reserve also caused a stir recently when they said that the official U.S. unemployment rate will continue to stay up around 10% throughout 2010.
Meanwhile, according to the Department of Labor, approximately 2.7 million unemployed Americans will lose their unemployment check before the end of April unless the U.S. Congress decides to extend their payments.
So what happens when millions of unemployed Americans don’t even have an unemployment check coming in?
Things are getting bad out there, and many financial institutions are beginning to take steps to protect themselves.
In fact, Citibank is now telling some of their customers that they are reserving the right to require 7 days advance notice before allowing a customer to withdraw their own money.
Yes, this is true.
Citibank is currently sending the following notification to their customers all over the United States, but according to them it was only supposed to go to their customers in Texas: “Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change.”
Could you imagine having to give your bank 7 days notice before you take your money out?
Dark economic times are ahead.
The truth is that the once great U.S. economy is crumbling. Just check out the chart below. Does this look like part of a “normal” economic cycle to you?….
There have been very few things more damaging to American consumers over the past couple of decades than credit card debt. Easy credit has enabled many of us to live absolutely fabulous lifestyles, but outrageously high interest rates, ridiculous penalties and predatory fees have sucked the financial life out of millions of American families. It is very easy to blame the rapidly exploding debt of the U.S. government for the economic collapse that we are now experiencing, but the truth is that tens of millions of Americans have created their own personal economic disasters by overusing credit cards. The temptation of easy credit has been too much for millions of Americans to resist, but now all of that easy credit is proving to be incredibly difficult to pay back, and massive debt problems are literally tearing many American families apart.
It is hard to underestimate how devastating credit card debt can be to a family.
According to the credit card repayment calculator, if you owe $6000 on a credit card with a 20 percent interest rate and only pay the minimum payment each time, it will take you 54 years to pay off that credit card.
During that time you will pay $26,168 in interest rate charges in addition to the $6000 in principal that you are required to pay back.
That does not even account for any penalties or fees you may have to pay.
Are you starting to get the picture?
The reality is that credit cards are one of the greatest inventions for sucking the wealth out of middle class American families ever invented.
So is Congress doing anything to protect American consumers?
Well, some of the key provisions of The Credit Card Accountability, Responsibility and Disclosure Act, commonly known as the CARD Act, go into full effect for all credit card providers on February 22nd. In particular, starting on the 22nd limits will be imposed on when credit card issuers can raise rates on existing card balances.
But the truth is that this new law doesn’t really do much to protect us. U.S. credit card companies will continue to be able to engage in highly predatory practices. The following are just three examples….
#2) New laws only address the existing fees charged by credit card companies. So credit card companies are working hard to invent all kinds of new fees and penalties that will get around the new laws so that they can keep sticking it to American consumers. For example, Citibank is now charging some consumers with a fee if they put less than $2,400 on their card annually.
#3) In anticipation of the CARD Act going into effect, many credit card companies have been aggressively bumping up the minimum payments for many of their customers. Chase, one of the biggest credit card providers, recently increased the mandatory minimum payment for many consumers by 150 percent. MBNA, Citibank and Bank of America have announced that they are doubling minimum monthly payments on credit card balances for many of their customers. These increases have been absolutely devastating for many families who are on a tight budget.
The bottom line is that we all need to get out of debt and we all need to stop using credit cards. It is financial insanity to end up paying two, three, four or five times as much for an item as it cost in the store. We have been making the big banks rich by spending money that we do not have.
So if we are going to accuse the U.S. federal government of horribly wasting our money, we have got to be certain that we are geting our own financial houses in order.
But for many American families it is already too late. It is hard to pay off debt if you don’t have a job and you are about to lose your home. In fact, many American families find themselves literally being torn apart by financial stress.
Unfortunately, economic times are not going to get any easier. If you are able, get out of debt while you still can. Now is the time to tighten our belts and to prepare ourselves and our families for what is ahead.
Is the Midwest about to see a massive wave of bank closings? That is apparently what the FDIC is expecting. The FDIC is opening up a massive new satellite office in the Chicago area that will be dedicated to managing receiverships and liquidating assets from failed Midwest banks. This new facility will occupy 7 floors in an 11 floor building. The office space that the FDIC is leasing is well over 100,000 square feet and will employ approximately 500 temporary employees and contractors. This is a huge expenditure by the FDIC. So will there really be so many bank failures over the next couple of years in the Midwest that a 100,000 square foot facility is required to deal with it?
Apparently someone at the FDIC thinks so.
But this is not the first time the FDIC has done something like this.
The FDIC has already opened similar offices in Irvine, California and Jacksonville, Florida. Each time, the number of bank failures in those states increased dramatically after the FDIC opened those facilities.
So what is going to cause such a massive wave of bank failures that the FDIC will need hundreds of new employees just to deal with it?
At the same time, a gigantic “second wave” of adjustable mortgages is scheduled to reset starting this year. This could push the U.S. economy into “part 2” of the housing crisis. Just check out the chart below….
In fact, one new study has been released that estimates that 5 million houses and condominiums on which mortgages are now delinquent will go through foreclosure and be put on the market within the next few years.
Another devastating housing crisis would absolutely destroy the vast majority of small to mid-size banks in the United States. In such a scenario, the FDIC would definitely be able to make use of the new facilities that they are opening up around the United States.
There are even rumors that the big bankers do not intend for most small and mid-size bankers to survive the coming crisis. There are whispers that the big bankers see all of this economic turmoil as a great opportunity to “consolidate” the banking industry.
So what should you and your family do to get prepared? Get out of debt and get rid of any unnecessary expenses. Try to start developing alternate streams of income and come up with a plan for what you will do if you lose your job.
The reality is that hard times are coming and a lot of people are going to lose their homes and their jobs. Don’t just blindly trust “the system” – now is the time to make sure that you and your family will be prepared even if a total economic collapse happens.