Our Financial Turn-Around: Are We There Yet?
George Boelcke CCP
March 21, 2009
For months, we have heard one recession story or statistic after another compared to the great depression. Last week, with four days of good stock market news, many of those same people now see an end to the recession.
Throughout these extremes are the continuous questions of when this recession will be over. Sorry, but nobody really knows. You´re just getting someone´s opinion – sometimes from someone credible, and sometimes from someone, well, not so much.
While a week of good news in the stock market is certainly welcome, we probably all know that this is not the end of the bad news, job losses, bailout hiccups, bonus payment surprises, or the likes.
The large banks are still in a world of pain, with trillions of dollars of toxic (or potentially toxic) loans on their books. Yes, last week´s Wall Street rally was led by the financial services field. But, please, most of their stocks are down 70 to 90 percent and really had nowhere to go but up. Lenders also have not seen the worst of the commercial real estate troubles, and credit card write-offs have a very long way to go.
Just like our personal finances, a part of the solution can only come through time. With our personal finances, it´s a lot more paychecks to pay down our debts, perhaps get the car paid off, or finally getting some savings in the bank. That doesn´t happen overnight. It might have taken a few minutes to spend the money, but it takes years to pay it off. Many government programs also require time to work their way through the economy. Whether it is the tax cuts, or stimulus spending, some of these programs will take time to make an impact and to get traction.
We are still in the middle of a business credit crunch, unemployment is still increasing, and consumer spending will be down for some time to come. In the financial sector, foreclosures also continue to increase, making it reasonable to think a bottom in the housing market has not been reached. According to Fannie Mae and Freddie Mac, the November to December 2008 period saw foreclosures increasing 35 percent! And the number of borrowers 60 days past due increased 10 percent. According to some reports, lenders already own about 16 million homes that eventually have to be sold.
While we are not there yet, the only thing we can control is our own financial situation and our attitude. Yes, you can choose not to participate in the recession, and most of us should probably watch a whole lot less news coverage and a whole lot more music and sports for the time being. I believe the unemployment rate will reach 11%. In all fairness, jobless numbers do not usually peak until after the worst is over, but that percentage would still only equal that of the 1981-82 recession. So, could we please stop talking about a depression? Without wanting to seem pessimistic, not many signs indicate to me that the recession will end before the summer of 2010. But in a world were sensationalism sells, we should remember that 96% of families are not in foreclosure, and more than 90% of people do have a job.
In this pre-economic boom, are we at least learning from the huge mistakes of others? Are we learning the painful lessons of so many people that debt isn´t your friend, that buying a new vehicle every three or four years is insane, and that anything we charge on a credit card will bite us really badly?
If we implement a solid financial game plan that includes becoming debt free, the next boom will last a whole lot longer. Because, at that point, we will actually be spending money we have, instead of convincing ourselves that more debt will make us wealthy. If so, consumer spending will no longer be over 70% of economic activity, because, just like we had to, retailers will also need to find a new reality.
Throughout these extremes are the continuous questions of when this recession will be over. Sorry, but nobody really knows. You´re just getting someone´s opinion – sometimes from someone credible, and sometimes from someone, well, not so much.
While a week of good news in the stock market is certainly welcome, we probably all know that this is not the end of the bad news, job losses, bailout hiccups, bonus payment surprises, or the likes.
The large banks are still in a world of pain, with trillions of dollars of toxic (or potentially toxic) loans on their books. Yes, last week´s Wall Street rally was led by the financial services field. But, please, most of their stocks are down 70 to 90 percent and really had nowhere to go but up. Lenders also have not seen the worst of the commercial real estate troubles, and credit card write-offs have a very long way to go.
Just like our personal finances, a part of the solution can only come through time. With our personal finances, it´s a lot more paychecks to pay down our debts, perhaps get the car paid off, or finally getting some savings in the bank. That doesn´t happen overnight. It might have taken a few minutes to spend the money, but it takes years to pay it off. Many government programs also require time to work their way through the economy. Whether it is the tax cuts, or stimulus spending, some of these programs will take time to make an impact and to get traction.
We are still in the middle of a business credit crunch, unemployment is still increasing, and consumer spending will be down for some time to come. In the financial sector, foreclosures also continue to increase, making it reasonable to think a bottom in the housing market has not been reached. According to Fannie Mae and Freddie Mac, the November to December 2008 period saw foreclosures increasing 35 percent! And the number of borrowers 60 days past due increased 10 percent. According to some reports, lenders already own about 16 million homes that eventually have to be sold.
While we are not there yet, the only thing we can control is our own financial situation and our attitude. Yes, you can choose not to participate in the recession, and most of us should probably watch a whole lot less news coverage and a whole lot more music and sports for the time being. I believe the unemployment rate will reach 11%. In all fairness, jobless numbers do not usually peak until after the worst is over, but that percentage would still only equal that of the 1981-82 recession. So, could we please stop talking about a depression? Without wanting to seem pessimistic, not many signs indicate to me that the recession will end before the summer of 2010. But in a world were sensationalism sells, we should remember that 96% of families are not in foreclosure, and more than 90% of people do have a job.
In this pre-economic boom, are we at least learning from the huge mistakes of others? Are we learning the painful lessons of so many people that debt isn´t your friend, that buying a new vehicle every three or four years is insane, and that anything we charge on a credit card will bite us really badly?
If we implement a solid financial game plan that includes becoming debt free, the next boom will last a whole lot longer. Because, at that point, we will actually be spending money we have, instead of convincing ourselves that more debt will make us wealthy. If so, consumer spending will no longer be over 70% of economic activity, because, just like we had to, retailers will also need to find a new reality.
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