Bankruptcy & Foreclosures

Amidst all of the economic turbulence of late, Uncle Sam has decided that it can spare a few bucks in the form of tax rebates to offset the recent slump. Just how much dough are we talking about? 150 billion dollars spread across some 116 million individuals. I don’t know about you but I’m betting the Treasury Department accountants have a few cases of Pepto Bismol on standby.

Here’s the sinker- Economists fear that the rebates will not show up as an economic impact until spending starts cranking up again: Next Christmas! Why the delay? Well for starters the IRS is already preparing for the inevitable truth that getting the rebate checks out to taxpayers before June will be quite a challenge. Add to this the fact that many early surveys conducted point to individuals hoping to save their rebate money or pay existing debts with it and the idea of pumping the money back into the economy starts to crumble.

As I’ve been discussing in recent posts, a recession kicks into high gear when people stop spending. The fact is that an $800 bonus, while by no means a permanent solution, could indeed get the wheels turning on consumer spending. Estimates say that back in 2001, some two thirds of the tax rebate cash issued was spent within 6 months hence proving a success. While I’m often the advocate of establishing a strong savings and managing personal finances very carefully, this may be the time to encourage some individuals to splurge a little; to put at least some of the tax rebate back into the laundry-mat of society. I know I for one am long overdue in the department of a flat screen TV.

Assuming you don’t live in a cave (which is a safe bet considering you have a computer with internet access) you’ve likely noticed the headlines that the Fed has once again cut rates in effort to salvage the slumping economy. While it makes for some great headline news, the real question is how does this affect us individually?

For starters it doesn’t mean that pursuing an Adjustable Rate Mortgage (ARM) should appear on your short-list of objectives even if initial rates suddenly look more appealing. The rate cut is a short-term solution to a long-term problem. If you are in the market for a mortgage, consider going with a fixed rate to capitalize on these (slightly) lower rates for the long run.

Why do ARMs rates drop more significantly than fixed when news of rate cuts hits? Well, simply because fixed mortgages aren’t affected by fluctuations on the short-term economic situation and instead focus on a much broader outlook. Since the state of economic affairs still looks shaky, long-term investments (like a mortgage) aren’t enjoying the dip like the ARMs are.

Don’t let this temporary ARM dip lure you into refinancing or taking out a home equity loan just yet. Analysts predict that when the Fed steps back to allow the rates to adjust themselves, any benefits of a low initial rate will fly out the proverbial window.

Well, deteriorating economic conditions have finally reached a point where domestic firms have issued a call for help. Surprisingly, foreign investors have been heeding the call and are injecting some well-needed funds into the American economy. Rather than private investors, much of the backing of these funds comes from foreign governments themselves.

Most individuals wonder how this will affect us on a daily basis. Analysts predict a slight fluctuation in the value of the US dollar (decrease against world currency). Closer to home we will witness lenders struggling to write loans. It will likely get more expensive for student loan lenders to finance education loans. Personal loans will also be affected with higher interest rates and tougher criteria.

The Catch-22 of the situation is that while 2008 appears to host price hikes in everything from our milk & eggs to the cost in home heating, cutting back on our spending only further accelerates the recession process. In this line of thinking, what’s a person to do? Spend, but spend wisely. Buy store brands, clip coupons, wait for sales. These are certainly days to put our budgeting and smart shopping skills to the test.