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Archive for the ‘Debt Manangement’ Category

Unfortunately for most of us in the world, midsummer 2007 will likely be the turning point from the “good ol days” of yesteryear to the mess we have on our hands now.

Before summer ’07, things were pretty much normal, if not good for the majority of us– we went to our jobs, our kids grew up and went off to college, we paid our bills, and had the general feeling that every day was a step forward as we productively built our futures, one brick at a time.

Then came the winds– the housing bubble “burst” in August of 2007.  We notice that the sky was a little less sunny, but I dont think any of us had any idea of the magnitude of the storms to come.

Within one year, Lehman Brothers filed for bankruptcy, which was a first in a chain of events that set the financial world on edge.  We learned about the widespread greed on Wall Street with “securitized” mortgages, and the mess of underwater home values.  The newspapers of the day’s headlines read:  CREDIT MARKETS FROZEN, and we wondered as the rain started and the winds howled at how it would affect us.

People stopped spending and hoarded cash.  Businesses sales plummeted, resulting in job cuts and a soaring unemployment rate.  This fed the cycle even more as the folks that still had a job worried about whether they would also lose it, and tightened the belt.  Those who were already unemployed didnt have the choice, and did what they had to just to survive.

2009 came and went with little change– things were tough.  by summer 2010, the Obama administration was trying to tell us all that the recession had “officially ended” in the summer of 2009.  By the fall of 2010, the stock markets began responding positively.  Then Tunisia.  Then Egypt.  Now the crisis in Japan, and the “war” in Libya.  The markets have been hammered as of late, and new worries abound about soaring food, clothing, and energy costs and the impact on what amounts to an anemic recovery, at best.

Are we headed for the fated “double-dip” recession, and just too myopic to see that we may already be “in” it?  I dont have a crystal ball– but I do have my concerns.

Unemployment has come down a bit, but the numbers are skewed.  The number of people who are considered gainfully re-employed are re-employed at much less than they used to make.  Businesses are still struggling.  People are still worried.  Tax revenues are down at the Federal and State levels, while the total debtload is up dramatically. 

All Americans ended up tightening the proverbial belt when the wheels started coming off the economic wagon, and dealt with debt by either paying off gobs of obligations, filing for bankruptcy, or settling the debt.  What did the federal government do?  It took on more debt.  It’s “income” from tax revenues is down dramatically, which is no different than any of us taking a big pay cut.  We paid off debt in our households– Our government borrowed more.  Their only solution has been to print more money to pay off the debt– a benefit they have that we as citizens cannot do.  Our dollar is therefore losing value, and there is now talk of the dollar losing it’s status as the world’s base currency.  The largest bond buyer in the world, PIMCO, has quit buying U.S. Treasuries.  China has already slowed it’s pace in buying up US treasuries, and threatens to cut even further.

All of this sure isnt stacking up in favor of a robust recovery, and even hints at possibly plunging us into the double-dip scenario.  State governments are functionally bankrupt.  The federal government is definitionally bankrupt.  Many households have drained their resources just weather the storm since 2007, and dont have the emergency nest eggs they had before the crisis began. 

Are we headed for another several years of turmoil?  I wish I knew for sure.  What I do know is that even if we are in a “recovery”, it looks to be a long and treacherous road to recovery, and by the time it happens, we are unlikely to remember what “normal” felt like in the first place…. it begs the question… is THIS the new normal?  Was pre-2007 the world as we “knew” it?  are we going to be bouncing our grandkids on our knees some day recollecting the “good ol days” before 2007?

The recent earthquake and tsunami in Japan has wreaked havoc on Japan’s infrastrutcture and economy.  And the aftershocks are still being felt.  Not only are there geophysical aftershocks to deal with, but aftershocks in the Japanese economy and the ripple throughout the rest of the world’s financial markets.

Of particular concern in the timing of the event, as the world economies were showing a few signs of life after a three year period of economic devastation.  Japanese Auto production has been shut down.  The Germans have shut down their older nuclear plants.  The markets have tumbled.  What are the long term impacts likely to be?

For one, as Japan must now focus its capital on rebuilding, the net worth of the world will not grow.  Using capital to expand and build can be engines for growth.  Rebuilding what already existed but now is lost is a net-net absorption of wealth.

The Bank of Japan has already released capital into the markets to boost rebuilding efforts.  This will surely have ripple effects on US issued treasuries and the debt of foreign governments all over the world.

The Japanese disaster is very unfortunate, and our hearts go out for all the families affected in this crisis.  While I struggle with grasping the implicaitons of what the horrendous event may have caused– ripples that will be felt long into the future– when looking at the anemic economies of the world, the unrest in the middle east, and the devastation on Japan, it’s no wonder that the markets are spooked.

Aside from a few bright spots here and there, there is major unrest, major natural disasters, hyper-inflation on our doorstep, and governments, both domestic and foreign, that are basically bankrupt.

The next several months will tell the rest of the story…

With oil, clothing, food, and utility prices on the rise, the cost of living is going up for all of us.  Prices at the pump are now topping $3.30, and some analysts see $4 to $5 gasoline by summer.  Combined with 9% unemployment, it’s a disaster scenario.  Welcome back the 1970′s Carter era stagflation.

Let’s look at each element of the above hypothesis and delve into some more detail.  First, there was inflation worry with the U.S. Treasury printing money like it’s going out of style to begin with.  Combine that with the unrest in virtually all of the middle east, and the resultant impact on oil prices, it’s a combination that is sure to drive the cost of living through the roof.  Increases in oil prices affect much more than the cost to get to and from work, if you are lucky enough to have a job.  Gasoline and Diesel fuel prices drive the costs of all goods– fertilizer prices go up and it costs more to produce food.  Transportation prices go up, and the cost of getting food to your local grocery store goes up.  Same goes for just about every good you can think of.

Now let’s look at the truth behind the unemployment figures… Companies have shed countless jobs, and although the overall employment rate appears to have increased, many people have accepted jobs where they are making much less than they were before.  Bonuses are not being paid like they were.  independent contractors and the self-employed, who arent part of the unemployment data are either unable to pay their bills, or just scraping buy.  What that all spells is a stagnant, lackluster recovery, regardless of the current bubble of exhuberance that Wall Street finds itself in.

It’s still good strategy to reduce debt levels and save whenever possible.  Make sure you plan and take advantage of every law, every bit of tax savings, and every bit of debt reduction you can– It’s my belief that we still have several more months of storms before we see the sunshine, and we are going to face another several years of stagnant growth and sacrifice.  Stagflation was defined in the 70′s as “high unemployment coupled with high inflation”.  Folks, I think we are looking at an era of S-2… the second round of stagflation.

Although I am not in the least an Obama fan (I am being kind here), at least I was happy to see some sense of vision for the future in Obama’s State Of The Union address last evening.  Some of Obama’s old fire was back, albeit misdirected once again.

I am sensing the same old disconnect again.  Sure, Wall Street is doing well recently, and hopefully it’s not a bubble and the Americans who still have some money in the markets were able to recoup some of their losses from the market highs of the past.  But make no mistake– Americans certainly arent feeling any richer.  Their home have lost value.  Their 401(k)’s are still down.  Jobs are still a big problem, and contrary to what appears as the officially published unemployment rate, things arent as good as the press wants everyone to believe.  There is once again a very serious disconnect between the bedfellows of Washington & Wall Street and the poor folks on main street.

I am not a census-taker.  My last name isnt Gallop.  But I do have eyes and ears, and I continually ask the question to many individuals, business owners, and just about everyone I come into contact with:  “do you feel richer, poorer, or what?”  “How do you feel now compared to four years ago?”  “are you more or less hopeful about your future than you were last year?   the year before?”.

The good news is that most Americans do believe that the worst of the financial hurricane is over.  They are looking around at the devastation it has caused in their lives, and now its time for the clean up.  Jobs are at the core of the American Psyche, and until employment improves, the sun may just be shining on the devastation in the wake of the storm. 

Certainly, we have had a glimmer of hope in recent months.  At least it is some improvement over the past couple of years for many.  But let’s be cognizant of the enormous debt we face, the Obama’s insistence on spending this country into oblivion, and the fact that any instability right now– whether it be a bursting of the stock market bubble, a financial crisis looming in a foreign country, steep inflation in cost of living (which is already underway if you look at prices at the pump, groceries and clothing), a war that develops (North Korea, the Middle East), and we are right back in a fix.  The only problem now is that people are just financially drained from trying to survive for the past two years. 

Banks’ balance sheets, in my opinion, are still not reflecting a ton of debt that is either in default or at risk for default.  Again, my opinion is not a scientific study, but what I see is some glimmer of hope amidst a real clean up mess.  The responses I get suggest the following among the “main-streeters”:

“THINGS ARE BOOMING”:                                                                virtually nil

“I’M SURVIVING”:                                                                                45%

“MY SITUATION IS STILL DETERIORATING                           35%

“I AM IN A CRISIS”                                                                               20% 

The concern I have with the numbers above from my independent study is this:  My offices is in a relatively upwardly mobile income area, and consists of many families, professionals, and business owners.  I would classify the study population as mostly middle to upper middle class families.  It exemplifies, and truly makes me wonder what results would occur if the study was taken involving all walks of life.  Over half of the people interviewed were not making any forward progress, and just still trying to stem the flow of blood.

When you really peel this proverbial “onion”, there are still a lot of layers to it all.  I sure hope we dont find a worm in the middle.  What I do know is that people are still concerned about jobs.  For those fortunate enough to have found jobs, there are many out there that are working for 1/2 to 2/3 of their former income.  Two-earner households are still living on one paycheck. 

It’s about the jobs, Mr. Obama.  You discussed the “jobs” problem, but offered no clear direction in your speech.  All the rosiness of the future you painted in your speech doesnt mean a hill of beans if people cant support their families.  All the clean air in the world doesnt feed the people.  Dont spend money on dumb stuff that no ordinary Americans care about.  Lower taxes, give small business a real chance to recover, and just get out of our way.  We are Americans, and we will survive.

A United States Bankruptcy petition has nine different certifications declaring that everything in the petition is true and correct, under penalty of perjury.  It’s not a word to be trifled with in the least.  Nor are bombs and terrorist plots on flights.

When filing a petition under any of the chapters of the Bankruptcy Code, it’s important to recognize the gravity of the situation.   The Trustee’s job is to do a thorough job of inquiry into ALL assets, values of such assets, items of income, and other pertinent data (which is about anything and everthing affecting finances), and to be a finder of fact, and to require the plain, unadulterated truth.  In essence, it’s a financial “bare-naked, full cavity search”.

When petitioning the Court for relief, it has to be for an honest hardship, with an honest evaluation of what assets are there to repay the creditors to some extent.  On one hand, there is nothing wrong with making intelligent yet honest use of the exemptions afforded you under the code, yet on the other hand, it must be truthful.

The Transportation Safety Commission is under a lot of heat lately, trying to find a delicate balance between being thorough by utilizing “pat downs” and “full body scanners”, and not invading the privacy we are guaranteed by the Constitution of the great country we live in.  It’s a difficult job, at best.

The Bankruptcy process and getting through airport security are fraught with the same sort of problems that lie at the heart of the matter– Most people are honest.  Most people would never think about bombing their fellow Americans.

As the old saying goes, a few bad apples spoil the bunch.  So it is with Bankruptcy and air travel– Good, law abiding citizens who are just going about their business are exposed to high levels of scrutiny due to a few bad apples.  Unfortunately, there is no way to guarantee the safe travel we enjoy without enhanced screening.  And there is no way to get relief from a troubling financial situation without a thorough screening by the Trustee.  These men and women are doing their jobs, and without their thoroughness and attention to detail, neither system would be reliable. 

Your bankruptcy lawyer is there to help you make intelligent use of the bankruptcy exemptions.  He or she is certainly not there to help the few bad apples conceal assets and deceive creditors.  Since human life is anything but in a static state, sometimes there are questions as to interpretation of the financial activity vis a vis the bankruptcy code- In that case, your lawyer is there to argue the ambiguous to help bring about a fair and just result.