Bankruptcy & Foreclosures

As a society we rely pretty heavily on the latent energy stored in a gallon of gasoline. For many of us, it’s simple to simply pull up to the pump, swipe our card in the reader, and fill up the tank. Believe it or not, using your credit card could be contributing to the record-high gas prices of late.

How so you wonder? The ability to accept a credit card isn’t a business freebie. In fact card issuers whack businesses with fees (usually in the form of a percentage of overall sales). Obviously since it would bad business to charge more per gallon just to individuals looking to use a credit card, these fees are made up by all of us; whether we pay with cash, credit, or debit. The gas station has no choice but to add a few cents per gallon to compensate for the fees they’re being charged.

According to Triple A, these fees can be as high as 7.5 cents per gallon! With a national average approaching $3.80 per gallon, every cent counts.

And speaking of the current crisis, gas prices approach a 20% rise this year alone and now Congress is finally asking the question, why is this happening? One week ago today House leaders sat down to hear testimony from consumer advocates, energy industry analysts, and truckers in effort to collect some answers.

Not surprisingly, they concluded that a majority of gas price increases could be attributed to crude oil’s dramatic price spike. More good news is that at the time of the meeting, crude was trading for $123.56 a barrel and analyst predict oil could rise to some $200/ barrel over the next six months to two years. Ouch!

Much of the heat, passion, and blame from both consumers and politicians alike has been aimed at the oil companies themselves. And perhaps with good reason too. While the oil companies claim they have no control over the cost of Middle Eastern-exported crude, the facts do still remain: Rising oil prices have helped drive up food costs, lowered trucking, refining, automaker and airline profits, and has actually changed individual driving habits, the oil industry has enjoyed record profits in the past few quarters. It’s tough to argue with facts that are so black and white.

So what, then, does the oil industry say in their defense? They say simply that as demand for oil and petroleum products rise globally, production costs naturally increase and oil becomes a rarer commodity. Fair enough, I suppose but what’s the solution? Some believe that taxing these companies (or at least closing up some of their tax benefits) would somehow benefit the consumer but Big Oil has that threat safely covered as well. After all, they say, how would charging us more lower the final cost to the consumer?

Good point.

If you’re anything like me, you probably don’t need expert advice when it comes to ideas on how to spend your money. However, with the Economic Stimulus checks arriving to individuals and families all across the nation, maybe it’s not such a bad idea to take a look at some useful ways to part with your check.

Chop down the debt tree:

It’s no secret that out of control borrowing is what got us into this pinch in the first place so it’s also not a bad idea to use the government’s definition of resolve to dig ourselves out of the hole. Credit cards, home equity lines, late mortgage payments, car payments these may not be the most enjoyable means of parting with a little cash, but it does help lighten our own loads while chipping away at the bigger problem.

Invest:

As is the case with any bonus money (meaning not a part of your expected salary) the opportunity to invest never looks better. Mutual funds, CDs, retirement accounts, or even buying up precious metals, collectables, or antiques. The government wants you to spend your money and putting it toward a rainy day benefits the economy twice.

Retail Purchases:

Here’s the one I don’t need additional help with! Surveys indicate that a majority of Americans plan to purchase up goods that they otherwise couldn’t quite afford. Televisions, computers, cell phones, stereos, and video games: These are the fun things retailers are hoping you will consider purchasing with your stimulus dough. How much so? Well many national retail chains are offering bonuses to customers willing to sign over their rebate checks.

Vacations:

Despite the fact that oil (fuel) costs continue to break records by the day, many Americans still plan to use their money to travel. Sadly, a majority of our money will now be burned up (literally) in form of gasoline and jet fuel, which means less cash for lodging and entertainment once we actually reach our vacation destinations.

Just how much money are we talking about here? More than 100 billion dollars will be in the hands of Americans by the end of the month. I could stand on the soapbox and offer pointers on how to spend your money but the fact remains that government doesn’t care how you part with it, just so long as you do. I will confess that much of my own money has gone into the exciting world of car repairs and an inflatable raft for some early spring river trips. It may not be flashy but as far as the Fed’s concerned, I’m pleased to do my part.

In my last post I did my best to convince you that rising interest rates aren’t evil in and of themselves. In fact, after much digging, it turns out that there are others out there in cyber space who agree with this assessment and hence provided me with some valid truths about the way the world works.

This time let’s dig into how inflation affects some other aspects of daily living. Sure you saw it first hand the last time you filled up at the pump or got to the cash register at the supermarket when what you spent a few months ago netted you half the groceries but have you given a moment’s thought to the fact that hospital costs have risen 8%? Worse yet is that the Fed’s response to pump more money into the economy means that even if the economy gets its well-needed boost, inflation may be here to stay.

So here’s the good news- there are a few realities to consider in times of inflation. This is the era of the tangible good. As inflation rises and the value of the dollar sinks, tangible goods have an edge over securities (especially bonds). Blame it on the human condition if you must, but there is simple logic in the appeal of goods (gold, gems, diamonds, antiques, art, etc.) over paper. In rough waters, it is the anchor that keeps us feeling safe and secure and in this case that anchor comes in the form of intrinsic worth that doesn’t fluctuate, even as paper money loses its value.

In addition, fixed rate loans suddenly become much more appealing in times of rapid inflation. Lenders know it and regret not selling you a variable rate loan when they had the chance. What’s the logic here? Simple: You’ll repay a fixed number of dollars every month, even as the dollar’s value tumbles to less than it was when you took out the loan. Not the case with ARMs (adjustable rate mortgages), adjustable home equity lines, and most of all credit cards! To make up for the fact that the dollar is worth less, all it takes is a rate hike to make up the difference to the lender.