Wednesday, May 31, 2006
Tuesday, May 30, 2006
2. Growth in Small Charges. To grow the outstanding balances on creditcards, there is going to be more of a push to allow small charges. An MSN Money column says, "Research firm TowerGroup predicts the volume of small electronic payments -- 'micropayments' -- will grow to $11.5 billion by 2009 in the U.S. and $40 billion globally." Why do you think so many people have creditcards in their wallets, creditcards in their drawers, creditcards next to their phones, creditcards in purses, and more creditcards coming in the mail? Issuers of creditcards are pushing to replace cash. This is another trap to avoid.
3. Credit Card Fraud. Security of your account information is poor. Visa found only 17% of the 231 large merchants it questioned were following payment card industry guidelines regarding customer data security. You hear about some kind of identity theft every day in the news. This is a compelling reason to avoid creditcards altogether, and to monitor your credit report using an alert service to notify you when your credit is checked.
In addition, the issuers of creditcards are always updating their bag of tricks to trip you up into defaulting - so just close your account - or eventually get duped.
Sunday, May 28, 2006
The movie suggests that wise consumers read the fine print. We simply don't do that anymore. Creditcards are issued based on signing the disclosure, which serves as the contract. Creditcards have a clause that says you agree to the terms of their contract that will be forwarded after the account is opened, with the creditcards in the mail. If you ask to see it before you open the account, they will refuse to disclosue it. So a wise consumer, according to this movie, would refuse to open the account.
The movie suggests that we borrow to make large purchases instead of saving for them first, but acknowledges that some people do. It is funny how they didn't even mention creditcards. It is also interesting that mortgage terms were as much as 25 years! Today, they can be interest only - or perpetual for a lifetime. It is easy to see that our standards have deteriorated. Lending has become predatory, because the banking industry can't be profitable unless it makes more money off the loans it makes. Creditcards have become the cashcow of banking. That means making riskier loans to justify higher charges, in combination with changing laws to boost collection power. Creditcards are the key today for banks.
Saturday, May 27, 2006
Why has the government done this? So they can print more money when they need it, and use a hidden tax called inflation that everyone pays equally, rich or poor, in the dollars they spend. By printing money, they skim off the value of the money already in circulation. That is the problem with a fiat currency, which is what this is called.
Friday, May 26, 2006
This sounds a lot like the pitch for mortgage loans today. They lend us money to get out of debt, while "responsibly" reminding us to live within our means, we are enabled in our addiction to living beyond our means. This is like giving a drug addict a fix, while telling him to stop using drugs. Then encouraging him to come back for more when he gets into trouble again. "We're here to help.", they say. This paradigm has gotten out of hand, now they issue creditcards to people in bankruptcy. Highschoolers are encouraged to carry creditcards. College students are not grown up unless they have at least one or more creditcards.
Thursday, May 25, 2006
Wednesday, May 24, 2006
Here is a video (Real Audio File) that is an excellent example of how we are mislead. This is the video's claim: Shopping is a necessary part of everyday life, full of choices and decisions that can greatly impact our lives. This film delvs into why we shop the way we do, and what we can do to be smarter shoppers. Despite the fashion sense of the two main characters, this film contains great lessons like determining your wants versus your needs.
The truth is this video leaves you believing that the secret to distinguishing between needs and wants lies in the fact that you might or might regret the purchase when you get home. If that isn't a way to encourage uncessary spending, I don't know what is. A "need" isn't what most people think it is. A need, in the economic sense, is used for survival - Food, Clothing, and Shelter. It isn't designer clothes, a dinner at and expensive restaurant, or a million dollar home. It is merely the basic product that provides the necessary function to satisfy that need. Everything else is what we want.
The video is correct in the sense that we do make buying decisions based on psychological desires to attract the opposite sex, or fulfill our dreams. That is where we get into trouble, and that is the motivating factor that is leveraged by advertisers. That is how they have turned wants into "needs" in our minds. They've confused us, and we make poor economic choices as a result.
Tuesday, May 23, 2006
Just stay out of debt folks, for all practical purposes there is no safety net since the new Bankruptcy Law has taken effect. Only if you are fortunate enough to navigate your way through the mire, will you get the fresh start you need. That is getting more difficult every day. It isn't worth the risk.
Monday, May 22, 2006
Here are some especially problematic terms that can be in your contract: Two-cycle billing. This uses two months of balances to come up with the average daily balance. It can be a big problem for borrowers who only rarely keep balances from one month to the next, because they'll end up paying two months interest for one month's debt. Universal default. This means your card company could raise your rates if you're late on somebody else's bill somewhere else.
If your credit history profile changes at all, they can view that as a signal to raise your rates. Over-limit fees. If you have a $5,000 credit limit and you use your card to buy something that costs $5,010, don't expect the charge to be denied. Instead expect your issuer to charge you a fee of $30 or more. Maybe you think that's worth it for the convenience.
Due times, not just dates. Many, if not most, issuers now consider a bill late if it arrives on the due date after a certain time of day -- typically before the mail is delivered. Then you can get busted for being late, a situation that can jack up your rate to levels over 20 percent and add another $30 or more in fees.
-- Crunch your own statements. Issuers say they could end up spending as much as $57 million to provide customers with customized minimum payment and balance disclosures, but most customers say that's what they want, according to a new report from the Government Accountability Office.
Individualized disclosures like that would let you know how long you'd have to make those minimum payments before you'd bust your balance to zero, and how much you'd pay in interest in the meantime. Don't hold your breath waiting for those statements. Go to an online calculator such as the bankrate Web site to get your own answer.
Go to the Reuters website for the full story.
Friday, May 19, 2006
We live in a very litigious society, and high-net-worth individuals are good targets. So the secret to real asset protection? Don't own or control anything. This isn't as simple as it sounds, but a book written by Jay Adkisson, "Asset Protection" is one of the best I've found. Be cautious, because there is a lot of illegitimate strategies that could land you in jail, or at least in the poorhouse. Jay is a highly respected attorney that is combating the fraud at his website www.quatloos.com. This is an area where you have to stay one step ahead of legislators and court rulings, because the law is extremely creditor friendly.
Wednesday, May 17, 2006
To quote Elizabeth Warren, "It's a market in which the protection goes to the lender. And the students get served up like turkeys at the Thanksgiving dinner."
Tuesday, May 16, 2006
Monday, May 15, 2006
Saturday, May 13, 2006
Friday, May 12, 2006
- Debt has expanded by 30.3 percentage points to 108.4 percent of
income – the first time since the Federal Reserve started conducting
this survey that debt exceeded income.
- Despite low interest rates, debt payments surged to new highs. In
2004, the typical family spent more than 18 percent of its income on
debt payments – the largest share since the Federal Reserve started
collecting these data.
- The share of heavily indebted households continues to rise. The share
of households with debt payments greater than 40 percent of income
rose from 12.8 percent in 2001 to 13.7 percent in 2004.
As a society, we are getting caught in a death spiral of debt. Save yourself before it all comes crashing down. Get out of debt!
Thursday, May 11, 2006
"Gold reached $700 an ounce on Tuesday.
The media, being economically ignorant, mentions oil, Iran, and sunspots as possible causes.
We're just kidding about the sunspots. But it is important to note that no one in the media knows to mention an increasing money supply as the most likely cause of soaring gold prices.
However, the Federal Reserve, at least, must be concerned about an increase in the money supply because . . .
- They raised the interest rates at which banks borrow from the Fed yesterday
- They've stopped reporting M3, the best indicator of monetary inflation
We're not trained economists ourselves (though we did sleep at a Holiday Inn Express last night), so what follows is merely our layman's understanding. And if we're wrong, someone will surely correct us, and we'll let you know. But, as we understand it, there are two ways the Fed creates new money . . .
Banks borrow from the Fed using outstanding loans as collateral. The Fed issues an order to the Treasury, new money is printed, and loaned to the banks. The banks then loan out this new money to their customers. These new loans, in turn, can be used as collateral to borrow yet more money from the Fed. When the Fed thinks the money creation caused by this pyramiding of debt is moving too fast, they tend to raise their interest rate to the banks. This gives the banks less incentive to borrow from the Fed, which slows the bank portion of the inflationary spiral. This is what happened yesterday.
The Fed buys government bonds, and the Treasury prints new money to give to the Fed to finance these purchases. So this new currency stays at the Treasury, the Fed gets the bonds as so-called collateral to "back" the new currency, and the Treasury uses the new currency to pay the government's bills. (Yes, our currency is "backed" by debt, and not by real assets like gold.)
Eventually all of this new currency works its way through the entire economy bidding up prices for food and gas and everything else. Including the price of gold, which is the best hedge against inflation, because it is very scarce and has instrinsic value. So . . .
Gold hits $700, the Fed raises interest rates, and stops reporting M3. What does it all mean? It probably means the money supply is soaring and the Fed wants to slow the portion of it that goes through the private sector (the banks), but maintain the portion that is helping fund the government.
Why does the Fed want to maintain the monetary inflation that funds government? Simple . . .
Congress has two ways to fund its deficits. Borrow money or print it. Increased borrowing equals increased demand for money. Increased demand for money drives up the interest rate Congress pays to borrow. This increases the debt still further. The Treasury fights this by printing new money, using inflationary Method #2. But this lowers the value of the dollar. Big lenders, like China, respond by increasing interest rates to compensate for inflation. Either way, the government's interest expense is bound to soar as long as deficits continue to mount.
The Fed is trying to hide this for as long as possible by not reporting M3. Problem is, the gold price gives them away.
The price of gold does not lie. But it is a late indicator.
And you can bet that gold is also being bid up right now because investors no longer have M3 to give them advance warning of monetary inflation. They're hedging. And all of this is very destabilizing.
The best way to stop this viscious cycle is to return to sound money -- dollars backed by gold reserves so that new dollars can only be created as fast as the gold supply increases, which is always very, very slow. Barring that, we can gain some increased stability by making the Fed report M3 again. This could be very important to your economic well-being, which is why we keep harping on it. Congressman Ron Paul has a bill that will do this, and we need to keep hammering on Congress to pass this bill. Hit them again! You can do so here.
John Hargrave at Zug.com decided to test the signature security on credit cards. You might find this shocking. If that isn't enough, he did it again, which was even more shocking than the first.
Think the credit card companies are worried about fraudulent charges? Think again.
Tuesday, May 09, 2006
Monday, May 08, 2006
Friday, May 05, 2006
Thursday, May 04, 2006
There is also a book you might consider called Thou Teacheth My Hand To War