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The New Personal Finance Culture in America

Recently, there has been a major development that changed the way Americans looked at money management. As the US economy struggled to recovery, ordinary citizens have had to cope with the “new normal”. No longer are credit, loans, and credit cards offers as abundant as they used to be. People are being forced to adapt to the new situation characterized by the following:

Long Term Unemployment

In the previous article, we talked about long term unemployment. Well, this phenomenon is still ever present with the jobless rate hovering at about 10 percent. Figures reveal that there is minimal hiring in the private sector. Most of the recent hiring we saw came from the government. The Obama administration said that the problem is cyclical. But economists expect that while unemployment will drop to 8.7% towards the end of next year and that it won’t be an easy target. Credit card holders need to be aware.

Renting Trumps Buying

Dreams of home ownership are being set aside for now. Instead, people are renting to keep a roof over their heads instead of buying. Between the year 2006 and 2009, the S&P/Case-Shiller Home Price Index showed that property value dropped by over 32 percent. This might encourage some people to buy homes at this point because of lower prices.

For the majority though, the property market would never be the same. And buying real estate is no longer perceived as a good investment. In this regard, renting instead of owning will be the preferred alternative for many.

Saving Against Spending

Americans have high credit card balances. This is stabilizing right now; in fact, credit cards’ balances fell by 6 percent or around $4.5 billion last June. At the same time, average savings rose to 6.4 percent (after-tax income). The rate is thrice higher compared to 2007. Over the short term, saving isn’t good for the economy. But over the long term, more responsible consumers mean better economic fundamentals.

Another trend is higher taxes for the country’s top earners. While this may not affect a significant number of people, some experts say that this can slow down an already-weak economy. Whatever the case, it seems that the “new normal” outlined above are here to stay.

Peer to Peer lending – Where Did it Go?

Peer to peer lending is now all but gone; however, for a while, peer to peer lending was the last resort for many in getting a loan.  Since banks began reducing the number of loans and stopped taking new applicants, peer to peer lending communities were often times the last place to go.  One of these communities, Prosper.com, has changed the language on their application page.  It now reads “We are unable to fund your loan at this time. However, Prosper has agreements with trusted partners who will work with you to determine if you can get a loan. If you would like to proceed please fill in the application below.”

So what happened to peer to peer lending?  Well, the government basically came in and said individual people cannot judge whether or not to lend other people money.  I find this both upsetting and amusing.  I was involved in one of these peer to peer lending communities, both as a lender and as a borrower.  I thought I was a great judge of who to lend money to! If I had an issue or concern, I could always ask the borrower.  I used a loan that I received from a peer to peer lending community shortly after college to consolidate my debts into a lower rate.  I am a big fan of the entire experience-from setting up my profile and loan request, to navigating the bidding process-all the way to funding.  I received a fixed rate loan, unlike the credit cards, that I planned to pay it off in three years time, unlike the credit cards.

The more and more I look around the web, the less and less places I find that enable consumers to go and get loans.  Credit cards are disappearing left and right.  Straight up unsecured personal loans are all but gone. Peer to peer lending was the last stop for most people, and now that is gone.  With regulators finally getting involved, I guess it was inevitable.

Banks say they are lending again-it’s just that most people are scared to apply.  I have actually heard otherwise from the lending community.  Banks are just forced to be picker with the criteria of their borrowers.  It looks like pay day loans and their dangerous pitfalls are all that is left for most American borrowers who are desperate for money.

What can you do if you are in these tough situations?  Before making any move you should always know where your credit stands.  You can always sign up for a free online credit report if money is tight.  If you find out your credit is in bad condition you are going to have trouble trying to get a loan.  Debt management help may be your last resort.  Be sure to compare the companies and programs that are out there as some specialize in debt settlement, credit counseling, and bankruptcy.

Recent Credit Crisis Effects on the world

The credit crisis has deeply affected the economy over the last few months, both domestically and internationally. In November 2008, 533,000 people lost their jobs! That month proved to be one of the worst months as far as layoffs go in the history of the United States. With unemployment drastically rising, this past holiday season fulfilled its promise of being of the worst on record. In addition to this drastic decrease in consumer spending, 1 in 10 homes were facing foreclosure.

By no means were we the only nation facing an economic crisis during that time.Taiwan‘s economy is 75% reliant on exports.In November, those numbers dipped by 23%! This was the worst drop in 7 years. As a result, the Taiwanese central bank lowered the bank to bank lending rate to 2%–it’s lowest in 26 years—to account for the loss of exports.

In Q2 France’s economy was down 0.3%; in Q3 it grew by 0.1%. But what really is 0.1%? As Q3 closed out, France narrowly escaped having to use the “R” word to describe the state of their economy. A recession is two consecutive quarters with losses to a country’s overall GDP. Russia also experienced economic hardship during this past year. In November, Russia’s unimplemented was at 1.5 million. It is expected to rise to 2-2.5 million by the end of 2009. The economic crisis America faces is by no means limited to our boarders.

Timothy Geithner’s Important Role

Upon hearing that Barack Obama named Timothy Geithner as the new Secretary of Treasury, the American markets got excited! Then I started to hear and read about this tax issue of $34,000. After all, our President had just named the man that could potentially fix the ever worsening financial crisis we currently face. Timothy Geithner is only 47 and was going to get us out of the deepest recession we have seen in generations.

Timothy Geithner’s management style and economic approach differs strongly from the former Secretary of Treasury, Henry Paulson, who is also the former CEO of Goldman Sachs. Geithner held office in the Treasury Department before working in the New York Fed in 2008. Based upon his background, I think he will have a much better understanding of the bailout and the overall process we must go through to execute the solution successfully. Paulson failed to impress me with his brief attempt to bail out some while letting others fall. He was able to rescue Bear Sterns and AIG, but letting Lehman Brothers fail? Geithner comes into office looking like the steady hand that can handle the crisis and understand our goals on a larger level.

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