The FED’s current unease about QEII can prove prophetic. Not that this unease is going to impact the monetary policy in any significant way.
QEII (quantitative easing, part two) is no shot in the arm for the real economy. The reason why quantitative easing will not have the desired effect this time around is that the underlaying problem has evolved. The challenge we are facing now is not a lack of liquidity. It is a lack of credit. More cash will only fuel new bubbles.
George Soros gave this speech at Columbia University on October 5. 2010 warning about the deflationary perils of austerity and speculating about what governments should be doing instead. See if you can tell where the markets are headed (and buckle up for safety!)
As you know I have written several books which serve to explain the crash of 2008. Two years have elapsed since then – it is time to bring the story up to date. That is what I propose to do today.
On its surface, introducing new credit card regulations to clamp down on abusive practices seemed a clear-cut solution. Once new credit card regulations take effect, so went the thinking, borrowers would no longer be fair game.
Sudden interest rate hikes, exorbitant fees and some other annoying credit card “features” have been tamed by new regulation. But as banks are phasing out outlawed fees, they are putting in place a new type of fee which is still legal.
Using credit cards for emergencies only is no longer an option. “Use it or lose it” is the new credo of credit card issuers. Now that banks can’t charge inactivity fees to improve profitability they now simply close idle accounts.
Whoever piled on huge amounts of debt on their credit cards is being watched carefully. Should the risk profile of a card holder rapidly deteriorate, they will get a fair warning before the lender can hike the rate. Changes to your interest rate must be announced at least 45 days in advance. On the flip side, banks may not be willing to extend credit when in doubt, given that they can’t get paid for any additional risk for as long as one and a half months.
Don’t wait for printed bank statements in the mail. Of course you still have to check thoroughly all the mail from your bank(s), but in most cases you can stay on top of your bank accounts with your Mac or PC, iPhone, BlackBerry or Android smartphones.
Online banking and budgeting tools are now en vogue. Comparing prices and fees in this changing landscape is a must, too:
But for many distressed Americans, credit card debt might be more than they can afford right now. Many families have been paying down their card debt aggressively. Still many homeowners have now only negative equity but also more revolving debt on their hands than they can possibly handle. If you are in this category start paying down bad debt immediately. Start with the debt which you can pay off the quickest while keeping up minimum payments on everything else, and once you wipe it out, apply the payment to your next debt, and so on. Forget the interest rate. The fewer balls you need to keep in the air, the easier your financial life will be.
Distressed sellers slashed their asking price for a third consecutive month in August. Government-backed mortgage refinancing is a flop and jobs aren’t here (yet). Only the stock market reflects none of that.
Government-backed mortgage refinancing programs such as HAMP and HARP don’t work as advertised. Banks seem to be misusing the bureaucratic quagmire for surprise foreclosures “through the back door” in order to clean up their balance sheets. It only raises the question how long banks are going to play this game.
But one thing is very clear. The real estate market can’t really recover so long as the economy isn’t fixed and about 20% Americans are unemployed, underemployed or completely gave up looking for a job.
It brings to mind a remark of Donald Trump on Larry King Live (04/29/2010):
If President Obama does a good job it’s not good enough for this country, that’s how bad the country has become.
Given such a high dissaproval rating the midterm elections look bleak for the Democrats. (Are you ready for some midterms?)
Several Democratic House members are now even going so far as to call for a full renewal of the Bush tax cuts for every tax bracket.
According to Politico, Reps. Jim Matheson (Utah), Glenn Nye (Virginia), Melissa Bean (Ill.) and Gary Peters (Mich.) drafted a letter to gather support, mostly from the moderate Blue Dog and New Democrat coalitions, for at least a temporary extension of the rates for top income earners as well as those in the lower brackets.
It is also estimated that up to one-third of high-income taxpayers are small business owners, our nation’s job creators and the backbone of our economic recovery. After the Health Care Reform and the Frank-Dodd Act, most small and mid-sized bussiness owners put further investments and hiring on the backburner. And many Clinton Democrats are fed up with Obama’s over-regulation and either abstain from voting or cast a vote for the Republicans.
If that happens, you can count on an extension of Bush’s taxt cuts, British-style austerity, and a general gridlock in Washington.
The upcoming midterm elections are looming large over the Obama administration. In just two months’ time, voters’ discontent will reshape the Congress and alter the power structure in Washington for at least the next two years.
Many voters are very unhappy with how things are shaping up. Especially the economy is on everybody’s mind. 9.6% is the official unemployment rate but as many as about one in five Americans barely make ends meet, because they are either unemployed, underemployed, no longer counted as such because they gave up searching, or just barely eke out a living on food stamps (it’s too much of a handout to die on but too little to truly call it a hand up).
The latter is of real concern, because these 40 million Americans are merely kept from starving with food stamps and the longer they have to rely on government assistance (and thus burden everyone else) the less likely they are to be re-integrated into the job market. Ever. Without expensive re-training measures (again, to be paid by the government), many of the long-term unemployed aren’t likely to find a paying job anytime soon.
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There is much discussion going on about the state of the economy, or the State of The Union if you will. Some economists argue that we are entering a deflationary cycle – like Japan’s ‘‘lost decade” of the 1990’s. Others believe that the U.S. economy is headed straight into high inflation. Either way, it is likely that this transitional phase is going to be quite a rough patch.
How are deflation, inflation and permanently high unemployment linked to each other? For starters…
While the Congress is in recess until mid-September and most Americans are on holidays, for investors it is now the best time to hedge your bets for 2011 and engage in mid-year financial planning activities. Of course the best tax planning never really stops, but 2010 is a very special year and you need to be extra vigilant.
