Tag: debt

Three years on, and ….

Nothing much changes.  This post first published on the 4th November, 2009!

Debt stress in Middle Class America – how may this play out?

On Saturday, October 24th Yves Smith of Naked Capitalism ran a Post on her Blog about an anonymous couple who were over their heads in debt.  (Yves has given me written permission to reproduce the Post.) The story of this couple then generated a huge response of comments. Read the comments, each and every one of them.

Then ask yourself abraham-lincoln-picturewhere this is all heading?  These comments may, almost certainly are, just be the tip of the iceberg.  Seems a long way from Lincoln’s Gettysburg address in which he was reputed  to have used the words: “… government of the people, by the people, for the people, shall not perish from the earth.”

Some days I worry; worry a lot!

The extract from Yves Post about this couple is reproduced below but far better is to go and read the whole Post and all the comments.

UPDATE: Since writing this Post Yves has published a further Post on the topic again generating a huge volume of comments.  That was Sunday, November 1st.  Then bright and early on November 2nd James Kwak of Baseline Scenario weighs in with his version, Do smart, hard-working people deserve to make more money? 150 comments (at the time of writing) for that one.  Interestingly, as the days have gone on the mood of the commentators has become more reflective and thoughtful thus partly negating the theme behind this Post.

This is the original Post from Naked Capitalism:

Some readers like to demonize those who get in over there heads with debt as people who lived high on the hog and had their day of reckoning come upon them. This story, forwarded from a reader, shows the picture is more complicated.

When I was young, savings of six months of living expenses was considered to be a good cushion against risk. Is that true any more? I doubt it. Although this couple didn’t even have that much stashed away, the sort of buffers that worked a generation ago are insufficient now. People spend longer between jobs than in the past, and if/when they do find new work, it is often at a lower level of pay than before.

Job loss and major illness rather than an overly lavish lifestyle are still the biggest causes of bankruptcy. And now that the average tenure at a job has shrunken considerably, people need to have more in the way of savings, yet the high cost of unemployment means it is even harder than before to build up a big enough kitty.

Via one a correspondent:

Just like most everyone I know, my husband and I are in big debt with our credit card companies. My husband was laid off on New Year’s Eve last year. We were in total shock. I am retired from the USAF and receive a small monthly check, and my husband began collecting a meager unemployment check. He searched all over the US and made several trips out west knocking on doors and handing out his resume. NOTHING. Anyway, we had no saving and a little bit of stock which was cashed in at an all time low. No help there. Then we started living off our credit cards. Without them, we would have not made it, period. Our daughter and her family moved in upstairs and her husband was working of a whopping $8.50 an hour. No help there. So basically we were supporting them as well.

We have a mortgage payment of $1175 and $30,000 equity still in our home, but we are unable to refinance at a lower rate BECAUSE my hubby was unemployed!

Getting back to my B of A card, I have NEVER been late on a payment in 10 years (until last month). I have always paid more than the minimum (until January 1st). BUT, my interest rates have inched up and up in the last few months and then, BOW! I tried to use my card about 3 weeks ago at the grocery store and it was denied. Needless to say, I walked out without the food. We don’t waste anything, not money, not food, not heat or lights, nothing, but we are going down fast. The good news is that my husband got a job this week (at a much, much lower wage) and will finally get a pay next week after almost 10 months. The bad news is that B of A is killing me and will ruin me soon. I sent them a “token” $10 payment on the $450 monthly that I owed. The payment was on time, but the $10 sure didn’t make them happy. They slapped a “LATE FEE” of $39 even though my “payment” was not late AND of course the dreaded overdraft fee of $39. Yesterday I got a statement from them saying that my next payment due 11/11 is $950. I can see the snowball at the top of the hill ready to roll. What do I do? Do I revolt and refuse to pay? Do I keep sending them $10 as a promise to pay? OR do I write Kenneth Lewis and say I want some of their TARP/bonus money back so I can apply it to my B of A account? It’s not fair, although I know we lived off our credits cards and much of what I owe is money that I spent on essentials, BUT, the ultrahigh interests rates combined with their slap-on-every-extra-fee-we-can mentality is outrageous. We have worked all our lives to have and keep our excellent credit ratings and now all that is shot.

What do I do? What do we do? Like I mentioned before, my husband just got a job, but he will be making much, much less than he used to. Our mortgage is behind, the bank is on us about that, our credit cards a behind and they want even MORE blood, our kids and their families aren’t making it even though they work and pinch every penny, no insurance is within reach for them or their babies, so we have been shuffling payments to help our grandchildren, the list goes on and on and on and on…

Please, what do we do? How can we stop the madness that has engulfed us? We are good citizens, worked hard all our lives, paid all our bills on time and paid more than the minimum – until lately -, penny pinch, reheat the reheated leftovers, eat toast, never go out, never hurt anyone, love our family and served our country, and now this.

Please, what do we do?


Could have been written yesterday!

But really the Irish are no fools!

Ever wondered how the Irish bailout really works?

I posted a rather tongue-in-cheek item on the Irish situation yesterday.  Anyway, a good friend, Peter M, sent the in following to illustrate both the complexity and, in the end, the delightful simplicity of the Irish bailout.  Read on.

It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.

The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the pub. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit.

The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveler will not suspect anything.

At that moment the traveler comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town!

No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.

And that, Ladies and Gentlemen, is how the bailout package works.

"Money in circulation!"

Thanks Peter – a wonderful tale!

By Paul Handover

My Giant Mastiff Eats Socialists

“The trouble with Socialism is that you eventually run out of someone else’s money.”

The Human Species is unique in many aspects, but outstandingly so in the art of irony. Take Socialists, for example.

Now these are extremely caring people; they love their fellows so much that they want to do everything possible to make them comfortable and happy. It’s so wonderful; one is so admiring, inspired even at this outpouring of fellow-feeling.

In pursuit of their noble aim, socialists therefore spend vast amounts of money on all kinds of services to make people’s lives happy.

It’s true that they don’t always ASK people what they WANT in order to be happy, but that’s because they are very clever people who know what is best for other people.

And so mushrooms a whole myriad of agencies and quangoes for this or that disability; this or that special needs group.

There is free this, free that, handouts, subsidies, initiatives, pledges (Gordon Brown’s speciality). It is all so uplifting, and of course FREE!! What could be more wonderful?

Of course, it all has to be paid for. Now this phrase “of course” is very interesting. It means that being paid for is bleedin’ obvious to the writer and to anyone else with the slightest understanding of economics, including my old Gran.

Funnily enough, however, it is not quite so obvious to socialists, who – rather sadly – seem to believe that money grows on trees. This phrase is a bit hackneyed, but I can’t think of a more fitting one.

So where DOES the money come from, since it does not actually – to the surprise of many socialists – grow on trees? Well, it comes from those who MAKE money! What a surprise. And of course, that is an inexhaustible fount which can be milked till the cows come home (or perhaps after they come home!) Hence the expression “milch cow”. Yes, those nasty capitalists can be milked for all they are worth.

Read the rest of this brilliant Post


Can someone clever PLEASE explain what is going on here?

Over the weekend, US Treasury Secretary Tim Geithner called on countries running trade surpluses – which includes Germany – to increase their spending.

Tim Geithner? You can’t get much higher in responsibility for the US economy, yet he comes out with what to the layman seems an absolutely insane statement.

Germany is ALSO heavily in debt. The German coalition government has just announced a “Sparprogram” of €80 BILLION euros. Families, the unemployed and the civil service are all going to be hammered.

Germany like everyone else has overspent and of course been hit by the bankers’ insane greed and the ensuing financial crisis. (By the way, the latter was a total breakdown by regulators and if Obama really wants to rant at someone he should rant at the people responsible for organising the regulation of finance in the USA … oopps …. that was the politicians! No wonder BP makes an easier target.)

Tim Geithner

But returning to Geithner, does he REALLY think that we can get out of this mess by Germany getting more heavily into debt? It’s potty, isn’t it? Someone said recently “You don’t give a drunk more alcohol.”

Someone, somewhere, someone has got to say “ENOUGH – NO MORE DEBT” And anyway, why SHOULD Germans be expected to shoulder the responsibility for everyone else?

No Mr Geithner! Your government can continue to spend money it hasn’t got if you like (the US up to a $ trillion of debt now?) , but please leave us over here in Europe to sort this mess out in our own way. You are beginning to sound like ex- (God, how I love that prefix) British PM Gordon Brown, who spent 13 years playing Fantasy Finance, with the results all too clear.

Maybe I’ve got this all wrong – salvation really does come by incurring ever more debt? If so, perhaps the economists can explain it to me.  Can we find two economists who agree?

The funny thing is, my Mum and my Gran both agree. In their day if you overspent you were in trouble and could neither blame anyone else nor hope that some benevolent soul would bail you out …. perhaps they should be running western economies?

By Chris Snuggs

Euro Crisis Master Plan

STOP PRESS – Now we have a Master Plan!

EU Foreign Ministers meet to draw up a policy re euro crises.

Herman Van Rompuy

European Council President Mr Herman Van Rompuy (aren’t we so lucky to have yet another tier of vastly-expensive management – a President of a country that doesn’t even exist?) said: “Everyone shares the will to go forward together”.

Indeed. It would be rather strange if one or more didn’t share “the will” and preferred to go backwards. But going forwards together infers at the same speed and in the same direction.

The Meeting drew up this plan of action.

  • greater budgetary discipline (will you tell France and almost every other country that never stuck to the 3% budget deficit or shall I?)
  • find ways to reduce the divergences in competitiveness between member states (so German IS going to take over Greece then? What fails in war can be achieved in the economy.)
  • establish an effective economic crisis management mechanism (you mean, prepare to borrow billions more to bail out those who fail in the above two areas?)
  • strengthen economic governance to be able to act quicker and in a more coordinated and efficient manner to deal with any future economic crises (yes, you could get a bit more efficient  than ignoring the rules for 10 years – certainly scope for improvement there.)

Is there any way not to be simultaneously cynical and depressed about Europe at the moment?

By Chris Snuggs

Today’s Funny

The art of saying something and meaning something totally different.

I must confess to being a bit fed up with Greece.

In Anglo-Saxon language their attitude used to be called “taking the piss“.  Today’s “funny” (or if preferred take your pick from: tragic, surreal, ludicrous, ridiculous,bizarre, insane or indeed all of these at once) is something the Greek Prime Minister said. Admittedly he said it in February and I’ve only just picked up on it.

Here’s an extract from what was said:

‘We are a country which cannot alone deal with the speculation. So this has become a European problem, because if we do have a major problem, this could create a contagion for other countries too who are not to blame.’

Brilliant and I especially love the use of the word “speculation”.

This makes it seem as if it isn’t Greece’s fault at all; it’s all down to those nasty fat people in suits and sunglasses, the evil international financial mafia seeking to destabilize his country.

Then there is the “if” word. Now normally this is associated with a condition, but anyone who even in February thought that there was any conditionality involved in Greece’s meltdown must have been looney, or perhaps the Head of the International Monetary Fund (IMF) who said this on March 8th:

Greece will be able to deal with its own financial problems without needing a bailout, the head of the International Monetary Fund said today.

IMF managing director Dominique Strauss-Kahn said that Greece’s debt mountain is unlikely to spread to other eurozone countries with high levels of public debt.

And Mr Strauss-Kahn dismissed market speculation of potential default by other heavily indebted eurozone countries such as Portugal, Spain or Ireland as scare-mongering.

IMF Director Dominique Strauss-Kahn answers questions on a panel with Bob Geldof in Nairobi yesterday. Mr Strauss-Kahn has said he believes Greece will not need an IMF bailout .

Yes, this is the same DSK who is paid a vast salary and expenses and could be the next President of the EU.Of course he could have been lying to try to restore “confidence”. However, lying is lying, for whatever reason. Or he could have just been humungously wrong.

That’s the trouble with our leaders and financial experts these days; you never know whether they’re lying or just stupid; it’s usually one or the other and sometimes of course both.

And Papandreou’s quote continues: ” a contagion for other countries“. Indeed, Mr P. And what do we do with a “contagion” in the body? We destroy it and get rid of it …. and finally we have “other countries too who are not to blame“.

AHA! At last! Proof that my old Mum in the UK on her measly pension is not to blame. Thanks Mr P. At last some recognition fo the truth. Let’s have a bit more of that ….

As for the merits of Greece’s plea for funds, you only have to read this devastating article to feel your flabber gasting to breaking point.

No wonder the Germans are increasingly threatening to dump Greece, and so they should. Not the German government (all governments seem currently to lack the guts to do anything really necessary or serious).

No, this time it’s an economics professor threatening to take the EU to court if they allow this blatantly EU-illegal bailout, and public opinion is increasingly on his side.

It is a horrendous mess, but the only solution is for Greece to leave the euro. Bailing them out is a black hole. Does anyone in their right mind think the Greeks can really change their traditional practices and suddenly become honest, thrifty and hard-working?

Well, the answer is probably  “Yes”, but then cloud-cuckoo land is becoming seriously over-populated.

Which reminds me, I must get back to the British General Election Campaign ……

By Chris Snuggs

Mr Micawber Strikes Again

Stating the obvious? So why is the reality so different?

British Chancellor with his famous red budget box. Is he proud of his vast borrowing "requirement"? He seems happy enough .....

Like Greece, Portugal is terribly indebted. Not because dirt-poor Senora Tristeza who sells in the local market decided to vastly overborrow more than she could pay, but because her government did.

Likewise, I did not ask the Labour government of Britain to borrow vastly over our repayment possibilities so that my son will be in hock for decades to come.

What is this absolute rubbish about “the borrowing requirement”? The British Chancellor comes out with this glib statement every budget day as if there was some cosmic compulsion that there should be a “borrowing requirement”.

NO, there shouldn’t …. Nobody FORCES us to borrow money, except perhaps in wartime. No government, and especially the current one, EVER says “No, we can’t afford that, we haven’t got the money and NO, we’re not going to borrow it.”

They just up the “borrowing requirement” automatically to pay for all their pet schemes and shibboleths. It is NOT a “requirement”.

It is a giving way to cowardice and greed, taking the easy way out. It is trying to impress people by the clever way they spend our money. They “require” to borrow because they do not have to courage to say (particularly near to elections): “Sorry people – we just can’t afford X, Y or Z as the money just isn’t there. We must be patient and live within our means.”

But it is time everyone started living within their means.

Individuals have a hard time sometimes, especially those desperate to get a foot on the housing ladder or parents desperate to get their kid into a good school, but the government does not have these excuses. There is NO excuse for building up vast debt. You have to live within your means.

This is so stunningly-obvious I wonder why it has to be said, but vast borrowing has become so endemic people think it is normal. And the levels of borrowing involved here are absurd. What sort of endictment is it of capitalism that several European countries (on the richest continent on the planet!!) are in great danger of going bankrupt?

Or, to put it another way, of defaulting on the debts that they cannot afford to repay? And even if they CAN pay they are also paying staggering amounts of interest, all money down the drain to fat bankers somewhere …..

Borrow to build a new railway because you’ll get the benefits back in emissions and efficiency savings. OK.

But borrow to pay civil-service bonuses and index-linked public (but not private!!) pensions and £60 billion on unelected quangoes and you will never get the money back. Someone will have to earn it, but the milch camel is staggering.

We need wise, courageous and fair-minded government which thinks of the long term. What are our chances of getting it?

By Chris Snuggs

Perkins and the Red Boxes

Current British Chancellor Alastair Darling has reverted to the original box first used by Gladstone in 1860.

Despite his trials at the ministry Perkins has been promoted!! Now he’s PA to the Chancellor, Gordon Brown. It’s now a few weeks before Budget day in 2005 …

“Perkins – the old red box looks a bit battered.”

“Well, it is 150 years old, Sir. It’s a sort of quaint British tradition.”

“Perhaps, but it’s not up to my modern, dynamic, ‘look to the future’ image. Please arrange to get some new ones made.”

“‘Some’, Sir? It’s only used once a year for a couple of hours.”

“Even so Perkins. We need a couple of spares and I must look the part. Besides, it’s a good opportunity to renew all the boxes used by other ministers. We should get a discount for quantity ….. Is there a problem?”

“Well Sir, the boxes are specially made, with lead and stuff so that if you are at sea and someone tries to get it you can chuck it overboard and it’ll sink.”

“Oh really Perkins! When am I going to be at sea with my budget?”

“No comment, Sir …”

“But we must move with the times, Perkins. What will this all cost?”

“About £400 a box, Sir – and about £60,000 to renew the lot!”

“Well there you go. A bargain.”

“But £60,000, Sir. We are already billions in debt!!

“Exactly. Compared to our existing debt £60,000 is a microscopic fleabite. See to it at once Perkins.”

“Of course, Sir. But are you sure? I could get you something reasonable from Woolies for £25.”

“Woolies, Perkins? What would people think?”

“Well, they might think you were trying to be frugal, Sir!”

Frugal? Frugal? What exactly is that, Perkins? Never come across it before.

“Quite, Sir.”

By Chris Snuggs

Greek Farce – Act IV, Scene III

P’sst!  Got a dime?

This bloke needs a reality check. If he is not going to ask for the dosh “formally” how IS he going to ask for it? Over a pint

George Papandreou

at the pub?

And what exactly are “preparatory moves”? A long sidle up to the Treasurer standing at the bar?  And how do you “prepare” to ask for 30 billion euros? Either you ask for it or you don’t? Oder?

Perhaps something is lost in translation ……

Greek Prime Minister George Papandreou has said his country is making “preparatory moves” to take advantage of a multi-billion euro rescue package.

He added, however, that Greece would not necessarily make a formal request for help.

STOP PRESS: Alex Brummer of “The Daily Mail” makes a very serious charge here in relation to Goldman Sachs and Greece’s financial status before entering the euro.

STOP PRESS TWO:  The BBC are reporting that Greece has formally asked for the dosh!

By Chris Snuggs

In or out of recession?

A friend on another site just posed this question.

Why is it that a recession is described as two or more successive quarters of “negative growth”, but being out of recession is just one quarter of (estimated) growth?

I felt emboldened to pen an answer as follows ….

In Britain, the definition of recession-emergence is from the same school of economics as growth predictions for next year (any year), which are always about 5 zillion% more than actually turns out to  be the case.

Recession in Britain

The cunning  idea is that future growth will be vast enough to cover the even vaster existing debts and commitments. And, of course, by the time we KNOW what the growth actually turned out to be, most people will have forgotten the predictions on growth from the financial and economic wizards running the country. That’s also one of the great things about a new mess or crisis; it always takes the mind off previous crises, which are likely to be ongoing but less in the media and therefore not to be bothered about too much.

This is, of course, in addition to the fact that growth in itself is incompatible with reducing global warming, but here we are getting a bit too technical.

Well, that’s how we do it in Britain anyway. How do you manage it over there?

by Chris Snuggs

A reply from a U.S. economist.

Hello there Chris!

Recession in the U.S. is also defined as two successive quarters of negative GDP growth.  At least, that’s how its officially defined.  And to add my answer to your friend’s question — either the economy is either in a recession — i.e., two or more consecutive quarters of negative GDP growth — or it isn’t, which means that the string of negative GDP growth rates is broken.  And that only takes one quarter of positive growth.

Most of the economists I know personally tend to look at a bigger picture than the stated GDP figures, however.   I focus on capital and labor utilization rates as I believe that they are more important measures of a well-functioning economy.  The final GDP figures in both of our countries are national income accounting figures, and have all the weaknesses of any income statement variable.   They are flow variables, which ignore the stock of economic wealth.   For example, if you invest $100 this year in the stock market, and it grows in value by $20, only the $100 is counted. The increase in wealth is never captured in measures of GDP.

Another problem with current measures of GDP and GDP growth is that government spending is considered on par with private spending, which brings into question the sustainability of growth measures based on GDP, although President Obama and perhaps Prime Minister Brown are both fine with growth rates being fueled by large increases in government spending.  Finally, a significant fraction of economic activity, like the value of work in the home — is not measured.

So, yes, the official measurement of GDP is all wrapped up in technicalities.  But most economists I know pay little attention to it.  They are more concerned with how well the economy is functioning, whether the growth is sustainable, and whether people who want to work can find work.  If you are unemployed, the economy is in a recession, regardless of what the GDP figures say!

by Sherry Jarrell