By TIM PARADIS, AP Business Writer
Wall Street surged higher Thursday, with the Dow Jones industrials up more than 400 points after a report that the federal government is considering creation of a repository for banks' bad debt.
CNBC said Treasury Secretary Henry Paulson is considering creation of an entity like the Resolution Trust Corp. that was formed after the failure of savings and loan banks in the 1980s.
Investors were cheered by the notion of a huge federal intervention like the establishment of RTC to acquire the real estate debt that has hobbled financial institutions and led to the intense volatility in the markets this week.
If there's an RTC-like entity, "it's going to take a lot of the bad debt off the balance sheets of these companies," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. That would alleviate many of the pressures causing the credit crisis, he said, and open up the credit markets again.
However, Fullman added, "the devil's in the details."
In late afternoon trading, the Dow soared 406.29, or 3.83 percent, to 11,015.95.
Broader stock indicators also jumped. The Standard & Poor's 500 index rose 41.54, or 3.59 percent, to 1,197.93, and the Nasdaq composite index advanced 76.52, or 3.65 percent, to 2,175.37.
Thursday, September 18, 2008
Friday, August 1, 2008
National Debt Statistics July 31, 2008
It's been a little while since I've spent time updating the blog, as it's been a very busy two months for me. While the Monthly Statement of the Public Debt for the month of July 2008 has not been released yet, the following reflects the total debt breakdown on July 31, 2008. More stats will come next week.
Debt held by public: $5,403,381,951,775.03
Intragovernmental holdings: $4,182,097,687,425.30
Total debt as of yesterday: $9,585,479,639,200.33
(Source: www.treasurydirect.gov)
Debt held by public: $5,403,381,951,775.03
Intragovernmental holdings: $4,182,097,687,425.30
Total debt as of yesterday: $9,585,479,639,200.33
(Source: www.treasurydirect.gov)
Thursday, July 31, 2008
Money advice from Bible gains favor as advisers like Dave Ramsey preach no debt
The following appeared in the July 29, 2008 online edition of the Chicago Sun-Times.
By JENNIFER GARZA |
SACRAMENTO BEE/Scripps Howard News Service
Before David and Maura Reza hand out the $5 weekly allowance to their children, David reads a Scripture from the Bible about money.
This is a shift for the family, which has retreated from what Maura Reza calls years of "selfish spending." Now they have turned to a higher power for managing their budget, the world of biblical financial planning.
The five children -- Brandon, Parker, Chandler, Lauryn and Aaron - squeeze around the dining room table in their spacious home to listen to their dad. They light up when Mom walks in with the cash.
"The important thing to remember is that all of this," said David Reza, opening his arms wide gesturing to everything in their house, "belongs to God."
It may not belong to the Rezas much longer. The family is in danger of losing their five-bedroom, 2,900-square-foot home. Even if they do, they believe their faith will help them with their finances.
The Rezas have turned to their church to help them climb out of debt. Courses on biblical financial planning -- which emphasize paying off debt, saving and tithing -- are now offered at more than a dozen churches in the region. More classes start in the fall.
"How we manage our money says a lot about how we feel about God," said Mark Eshoff, executive minister at Fremont Presbyterian Church, which has offered financial courses for several years. "When you are worried about money, you can't be free."
A half-dozen church leaders a week are asking about classes, more than twice as many as last year, said Pamela Christensen of Crown Financial Ministries, which is taught at several churches in the Sacramento region.
"Their people are in a crisis situation, they don't know what to do," said Christensen. "They hear about what the Bible said about debt and it makes a lot of sense."
Christensen said money is mentioned more than 2,300 times in the Bible, more than any other topic, including the oft-cited Proverbs 22:7. "The rich rules over the poor and the borrower becomes the lender's slave."
The Rezas fell into a financial hole last November when the bank foreclosed on their second home and the couple declared bankruptcy.
They later heard about biblical financial management and in June, the couple finished a 10-week course at Bayside Church in Granite Bay. For the first time, they say they are united about money.
It has not been easy.
They keep track of what they spend in a notebook. They sold some of their possessions, including an exercise machine. They cut back cable TV, quit their gym membership, unplugged a freezer in their garage and juggled work schedules to save on child care.
When their dryer started breaking down, they put a clothesline in their backyard.
"I know what we're doing is the right thing, and it's important that we are better examples for our children," Maura said as she showed her daughter how to hang a blouse on the clothesline. "But we have a long, long way to go."
Gina and Joe Macfarlane of Folsom say they have found financial peace.
"We got tired of living paycheck to paycheck," said Gina Macfarlane, who works as a bookkeeper at Lakeside Church in Folsom where the family attends. Her husband is in sales.
Believing they were not living the way God intended, they began following a program at their church that teaches the Dave Ramsey approach to finance. He is a radio talk show host who tells listeners they should be debt-free.
The Macfarlane's sold their new 2,200-square-foot Folsom home and moved into a 1,200-square-foot ranch house in an older neighborhood. They sold their BMW, their motor home and furnishings to pay off $42,000 in credit card debt.
They have followed the program faithfully for four years, and can account for every dollar of their $140,000 income. They use cash only, believing credit is not biblically sound.
The Macfarlanes plan to pay off their house soon, saying they don't want to grow old with a mortgage payment.
While paying down debt is admirable, some analysts suggest there are limits.
Dave Ramsey "creates this Mayberry world, but this is a much more sophisticated society," said Robert Manning, professor of consumer finance at Rochester Institute of Technology and author of "Credit Card Nation: The Consequences of America's Addiction to Credit."
"The reality is that we live in society with tax advantages and where credit should be used effectively - not banned."
Manning praised churches for promoting financial education but cautioned that religious groups also are acting out of self-interest. "If these people are in debt, they can't tithe, and that means the church feels it," he said.
"These programs teach that you should tithe first."
By JENNIFER GARZA |
SACRAMENTO BEE/Scripps Howard News Service
Before David and Maura Reza hand out the $5 weekly allowance to their children, David reads a Scripture from the Bible about money.
This is a shift for the family, which has retreated from what Maura Reza calls years of "selfish spending." Now they have turned to a higher power for managing their budget, the world of biblical financial planning.
The five children -- Brandon, Parker, Chandler, Lauryn and Aaron - squeeze around the dining room table in their spacious home to listen to their dad. They light up when Mom walks in with the cash.
"The important thing to remember is that all of this," said David Reza, opening his arms wide gesturing to everything in their house, "belongs to God."
It may not belong to the Rezas much longer. The family is in danger of losing their five-bedroom, 2,900-square-foot home. Even if they do, they believe their faith will help them with their finances.
The Rezas have turned to their church to help them climb out of debt. Courses on biblical financial planning -- which emphasize paying off debt, saving and tithing -- are now offered at more than a dozen churches in the region. More classes start in the fall.
"How we manage our money says a lot about how we feel about God," said Mark Eshoff, executive minister at Fremont Presbyterian Church, which has offered financial courses for several years. "When you are worried about money, you can't be free."
A half-dozen church leaders a week are asking about classes, more than twice as many as last year, said Pamela Christensen of Crown Financial Ministries, which is taught at several churches in the Sacramento region.
"Their people are in a crisis situation, they don't know what to do," said Christensen. "They hear about what the Bible said about debt and it makes a lot of sense."
Christensen said money is mentioned more than 2,300 times in the Bible, more than any other topic, including the oft-cited Proverbs 22:7. "The rich rules over the poor and the borrower becomes the lender's slave."
The Rezas fell into a financial hole last November when the bank foreclosed on their second home and the couple declared bankruptcy.
They later heard about biblical financial management and in June, the couple finished a 10-week course at Bayside Church in Granite Bay. For the first time, they say they are united about money.
It has not been easy.
They keep track of what they spend in a notebook. They sold some of their possessions, including an exercise machine. They cut back cable TV, quit their gym membership, unplugged a freezer in their garage and juggled work schedules to save on child care.
When their dryer started breaking down, they put a clothesline in their backyard.
"I know what we're doing is the right thing, and it's important that we are better examples for our children," Maura said as she showed her daughter how to hang a blouse on the clothesline. "But we have a long, long way to go."
Gina and Joe Macfarlane of Folsom say they have found financial peace.
"We got tired of living paycheck to paycheck," said Gina Macfarlane, who works as a bookkeeper at Lakeside Church in Folsom where the family attends. Her husband is in sales.
Believing they were not living the way God intended, they began following a program at their church that teaches the Dave Ramsey approach to finance. He is a radio talk show host who tells listeners they should be debt-free.
The Macfarlane's sold their new 2,200-square-foot Folsom home and moved into a 1,200-square-foot ranch house in an older neighborhood. They sold their BMW, their motor home and furnishings to pay off $42,000 in credit card debt.
They have followed the program faithfully for four years, and can account for every dollar of their $140,000 income. They use cash only, believing credit is not biblically sound.
The Macfarlanes plan to pay off their house soon, saying they don't want to grow old with a mortgage payment.
While paying down debt is admirable, some analysts suggest there are limits.
Dave Ramsey "creates this Mayberry world, but this is a much more sophisticated society," said Robert Manning, professor of consumer finance at Rochester Institute of Technology and author of "Credit Card Nation: The Consequences of America's Addiction to Credit."
"The reality is that we live in society with tax advantages and where credit should be used effectively - not banned."
Manning praised churches for promoting financial education but cautioned that religious groups also are acting out of self-interest. "If these people are in debt, they can't tithe, and that means the church feels it," he said.
"These programs teach that you should tithe first."
Friday, June 6, 2008
Newest National Debt Statistics posted - May 08
The newest National Debt statistics for May 2008 are now posted at www.TreasuryDirect.gov
As of June 5, 2008, the National Debt now stands at:
Debt Held by Public: $5,307,426,828,369.59
Intragovernmental Holdings: $4,100,067,474,477.98
Total Debt: $9,407,494,302,847.57
Interest payments, May 2008: $22,388,495,898.10
Total interest FY 2008: $266,292,148,866.57
Public Contributions
APRIL 2008 $ 511,105.60
Total FY 2008 $1,916,391.41
As of June 5, 2008, the National Debt now stands at:
Debt Held by Public: $5,307,426,828,369.59
Intragovernmental Holdings: $4,100,067,474,477.98
Total Debt: $9,407,494,302,847.57
Interest payments, May 2008: $22,388,495,898.10
Total interest FY 2008: $266,292,148,866.57
Public Contributions
APRIL 2008 $ 511,105.60
Total FY 2008 $1,916,391.41
Thursday, June 5, 2008
AP: Foreclosures hit a record high - and more coming
Thursday June 5, 4:30 pm ET
By Jeannine Aversa, AP Economics Writer
Foreclosures surge to a record high -- late payments, too, signaling worse to come
WASHINGTON (AP) -- The foreclosure hammer is hitting ever harder. People lost their homes at the highest rate on record in the first three months of the year, and late payments soared to a new high, too -- an alarming sign that the housing crisis and its damage to the national economy may only get worse.
Dumping more empty homes on an already glutted market also is likely to put a further drag on home prices -- extending a vicious cycle.
Slumping home values are being blamed in large part for the rising tide of foreclosures. Troubled borrowers are left owing more to the bank than their homes are worth. They can't sell without taking a huge financial hit, so they just walk away.
In fact, Americans' equity in their homes -- usually their single biggest asset -- now has dropped to the lowest level on record in figures going back to the end of World War II. Homeowners' portion of equity fell to 46.2 percent, which means the amount of debt tied up in their homes exceeds the equity they have built up.
Watching their home values sink, consumers have pulled back on spending, a factor in the economy's slowdown. Buoyed by rebate checks, shoppers did get back in the buying groove in May, but analysts predict that consumers -- pounded by galloping gasoline prices -- will still be cautious.
"The economy is treading water, and the housing market is one of the undercurrents trying to pull it down," said Stuart Hoffman, chief economist at PNC Financial Services Group.
Nearly 1 percent, or roughly 447,723 loans, fell into foreclosure during the January-to-March period, the Mortgage Bankers Association said Thursday in its quarterly snapshot of the mortgage market. That surpassed the previous high of 0.83 percent over the last three months in 2007.
The report also found that more homeowners slipped behind on their monthly payments. The delinquency rate jumped to 6.35 percent -- or 2.87 million loans -- compared with 5.82 percent for the previous three months. Payments are considered delinquent if they are 30 or more days past due.
Both the rate of new foreclosures and late payments were the highest on record going back to 1979.
With prices expected to keep dropping, foreclosures and late payments "are going to continue to go up," Jay Brinkmann, the association's vice president of research and economics, told The Associated Press.
Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers also swelled to all-time highs in the first quarter.
The percentage of subprime adjustable-rate mortgages that started the foreclosure process climbed to 6.35 percent. The rate was 5.29 percent in fourth quarter, the previous high. Late payments rose to 22.07 percent from 20.02 percent, the previous high.
The association's survey covers just over 45 million home loans.
More problems also cropped up with loans to more creditworthy borrowers.
The percentage of such loans falling into foreclosure was 0.54 percent, compared with 0.41 percent at the end of last year. Late payments rose to 3.71 percent from 3.24 percent.
The numbers were higher for those prime borrowers with adjustable rate mortgages. Initially low rates reset to much higher ones, making it difficult, if not impossible, for homeowners to keep up with monthly mortgage payments. The proportion of those loans falling into foreclosure jumped to 1.55 percent from 1.06 percent. The delinquency rate rose to 6.78 percent, compared with 5.51 percent.
"The number one problem is the drop in home prices," Brinkmann said. Declining prices, especially in newer built areas, "are hurting people's ability to recover when they run into trouble -- a divorce or loss of job," he said. "In other days, you could sell the home. But because home prices have fallen so much, in many of those cases, the homes are going into foreclosure."
California, Florida, Nevada and Arizona accounted for 89 percent of the total increase in new home foreclosures, he said. Those are places where prices have fallen sharply and there was a lot of home building, creating too much supply, Brinkmann said.
"These extra inventories from foreclosures complicate what is already a heavily built situation," said David Seiders, chief economist at the National Association of Home Builders.
After a five-year boom, the housing market fell into a deep slump two years ago. That dragged down sales, and prices with it. As the value of homes plummeted, many newer homeowners found themselves owing more on their mortgages than their homes were worth.
Nearly 8.5 million homeowners had negative or no equity in their homes at the end of March, representing more than 16 percent of all homeowners with mortgages, according to Mark Zandi, chief economist at Moody's Economy.com. He estimates that will increase to 12.2 million, or almost one out of every four homeowners, by the end of June.
Nearly three in 10 people say they are worried their home's value will decline over the next two years, according to a recent Associated Press-AOL Money & Finance Poll. Sixty percent said they definitely won't buy a home in the next two years. That's up from 53 percent two years ago.
As foreclosures and late payments climbed, financial companies took multibillion-dollar losses when their investments in mortgage-backed securities soured. A credit crisis spread, crimping other types of financing. The fallout plunged Wall Street in turmoil, disrupting the normal functioning of markets.
All those troubles have pushed the economy to the brink of a recession. Employers, cutting costs, have eliminated more than a quarter-million jobs in the first four months of this year.
To bolster the economy, the Federal Reserve made aggressive interest rate cuts. But with inflation on the rise, Fed Chairman Ben Bernanke this week sent his strongest signal yet that the central bank's rate-cutting campaign is coming to an end.
The Bush administration has urged lenders to freeze rates for some homeowners and encouraged lenders to rework mortgage terms so troubled borrowers can stay in their homes.
A congressional plan that includes a foreclosure prevention program has stalled as lawmakers figure out how to pay for it.
Associated Press Business Writer J.W. Elphinstone contributed to this report.
Mortgage Bankers Association: http://www.mbaa.org/
By Jeannine Aversa, AP Economics Writer
Foreclosures surge to a record high -- late payments, too, signaling worse to come
WASHINGTON (AP) -- The foreclosure hammer is hitting ever harder. People lost their homes at the highest rate on record in the first three months of the year, and late payments soared to a new high, too -- an alarming sign that the housing crisis and its damage to the national economy may only get worse.
Dumping more empty homes on an already glutted market also is likely to put a further drag on home prices -- extending a vicious cycle.
Slumping home values are being blamed in large part for the rising tide of foreclosures. Troubled borrowers are left owing more to the bank than their homes are worth. They can't sell without taking a huge financial hit, so they just walk away.
In fact, Americans' equity in their homes -- usually their single biggest asset -- now has dropped to the lowest level on record in figures going back to the end of World War II. Homeowners' portion of equity fell to 46.2 percent, which means the amount of debt tied up in their homes exceeds the equity they have built up.
Watching their home values sink, consumers have pulled back on spending, a factor in the economy's slowdown. Buoyed by rebate checks, shoppers did get back in the buying groove in May, but analysts predict that consumers -- pounded by galloping gasoline prices -- will still be cautious.
"The economy is treading water, and the housing market is one of the undercurrents trying to pull it down," said Stuart Hoffman, chief economist at PNC Financial Services Group.
Nearly 1 percent, or roughly 447,723 loans, fell into foreclosure during the January-to-March period, the Mortgage Bankers Association said Thursday in its quarterly snapshot of the mortgage market. That surpassed the previous high of 0.83 percent over the last three months in 2007.
The report also found that more homeowners slipped behind on their monthly payments. The delinquency rate jumped to 6.35 percent -- or 2.87 million loans -- compared with 5.82 percent for the previous three months. Payments are considered delinquent if they are 30 or more days past due.
Both the rate of new foreclosures and late payments were the highest on record going back to 1979.
With prices expected to keep dropping, foreclosures and late payments "are going to continue to go up," Jay Brinkmann, the association's vice president of research and economics, told The Associated Press.
Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers also swelled to all-time highs in the first quarter.
The percentage of subprime adjustable-rate mortgages that started the foreclosure process climbed to 6.35 percent. The rate was 5.29 percent in fourth quarter, the previous high. Late payments rose to 22.07 percent from 20.02 percent, the previous high.
The association's survey covers just over 45 million home loans.
More problems also cropped up with loans to more creditworthy borrowers.
The percentage of such loans falling into foreclosure was 0.54 percent, compared with 0.41 percent at the end of last year. Late payments rose to 3.71 percent from 3.24 percent.
The numbers were higher for those prime borrowers with adjustable rate mortgages. Initially low rates reset to much higher ones, making it difficult, if not impossible, for homeowners to keep up with monthly mortgage payments. The proportion of those loans falling into foreclosure jumped to 1.55 percent from 1.06 percent. The delinquency rate rose to 6.78 percent, compared with 5.51 percent.
"The number one problem is the drop in home prices," Brinkmann said. Declining prices, especially in newer built areas, "are hurting people's ability to recover when they run into trouble -- a divorce or loss of job," he said. "In other days, you could sell the home. But because home prices have fallen so much, in many of those cases, the homes are going into foreclosure."
California, Florida, Nevada and Arizona accounted for 89 percent of the total increase in new home foreclosures, he said. Those are places where prices have fallen sharply and there was a lot of home building, creating too much supply, Brinkmann said.
"These extra inventories from foreclosures complicate what is already a heavily built situation," said David Seiders, chief economist at the National Association of Home Builders.
After a five-year boom, the housing market fell into a deep slump two years ago. That dragged down sales, and prices with it. As the value of homes plummeted, many newer homeowners found themselves owing more on their mortgages than their homes were worth.
Nearly 8.5 million homeowners had negative or no equity in their homes at the end of March, representing more than 16 percent of all homeowners with mortgages, according to Mark Zandi, chief economist at Moody's Economy.com. He estimates that will increase to 12.2 million, or almost one out of every four homeowners, by the end of June.
Nearly three in 10 people say they are worried their home's value will decline over the next two years, according to a recent Associated Press-AOL Money & Finance Poll. Sixty percent said they definitely won't buy a home in the next two years. That's up from 53 percent two years ago.
As foreclosures and late payments climbed, financial companies took multibillion-dollar losses when their investments in mortgage-backed securities soured. A credit crisis spread, crimping other types of financing. The fallout plunged Wall Street in turmoil, disrupting the normal functioning of markets.
All those troubles have pushed the economy to the brink of a recession. Employers, cutting costs, have eliminated more than a quarter-million jobs in the first four months of this year.
To bolster the economy, the Federal Reserve made aggressive interest rate cuts. But with inflation on the rise, Fed Chairman Ben Bernanke this week sent his strongest signal yet that the central bank's rate-cutting campaign is coming to an end.
The Bush administration has urged lenders to freeze rates for some homeowners and encouraged lenders to rework mortgage terms so troubled borrowers can stay in their homes.
A congressional plan that includes a foreclosure prevention program has stalled as lawmakers figure out how to pay for it.
Associated Press Business Writer J.W. Elphinstone contributed to this report.
Mortgage Bankers Association: http://www.mbaa.org/
Sunday, May 25, 2008
When the economy revives, how will we know?
The following appeared on page 7D in the Sunday May, 25, 2008 issue of the St. Paul Pioneer Press.
By Jeannine Aversa
Associated Press
WASHINGTON - With any luck, the second half of this year will be better than the so-far rocky first half. The Federal Reserve chief hopes that is the case. So does President Bush.
For the rest of us mere mortals, it feels like the pain is getting worse.
When the economy begins to snap out of its funk, how will we know?
Like calling a recession, pin-pointing the turnaround can be as much art as science. Economists agree there could be some strong signals to look for, however: A calmer stock market, an end to falling home prices and more jobs being created.
We're not there yet.
The economy by all accounts is suffering through difficult times, although some economists have backed off the recession talk. Economic growth has slowed sharply and employers have cut jobs for four months in a row as problems in housing, credit and financial markets forced skittish people and businesses alike to hunker down.
Even though a Labor Department report last week showed the number of newly laid off workers filing for unemployment benefits dropped to the lowest level in a month, claims remain high enough to indiate the labor makret is sluggish.
Still, there's hope that the economy's growth will begin picking up later this year.
Experts will be looking at a variety of barometers to mark the arrival of a rebound, but it's by no means definitive or foolproof.
One important indicator is the stock market. The turbulence taht has engulfed Wall Street since last summer and hit a crisis point with the near collapse of investment firm Bear Stearns, has calmed somewhat, but the situation is still "far from normal," Fed Chairman Ben Bernanke recently observed.
The Dow Jones industrial average, for instance, has clawed its way out of a recent bottom - 11,740.15 - hit in March. However, the index is still under 13,000, well below its peak of 14,087.55 set in early October of last year. Financial markets remain fragile.
Investors are looking ahead - at the economy's prospects and individual businesses - when they make investment decisions and are buying or selling stocks.
"The canary in the coal mine is really financial markets," said Sung Won Sohn, an economics professor at California State University. "The stock market recovery almost always precedes the economic recovery by about six months or so. The exception was in the 2001 recession. Because of the dot-com crisis, the stock market was so badly battered it took a while for it to get back to full speed," Sohn said. By his count, after the 2001 recession, the stock market lagged the economic recovery by one year.
In the current bout of economic troubles, though, fallout from the 2-year-old housing collapse and subsequent credit and financial problems has driven the pullback by consumers, businesses and Wall Street.
That's why economists - this time around - will be looking for signs of stabilization in the housing market. Specifically, house prices will have to stop falling or at least decline at a slower pace in many parts of the country. As many Americans have watched their single-biggest asset - their home - shrink in value, they have become much more cautious in the spending, contributing to the economy's slowdown.
On Thursday, the Office of Federal Housing Enterprise Oversight said U.S. home prices fell 3.1 percent year-over-year in the first quarter, the largest drop in the 17-year history of tracking the data.
House-price improvements also are important to a return to stability because house prices figure into the value of a host of securities, such as mortgage securities and derivatives.
And, improving house prices also would ripple through credit markets, making lenders more willing to make loans to people and businesses. That, in turn, would help bolster confidence in financial markets, economists said.
"Until the housing and credit markets improve, businesses and consumers will be doubting Thomases - there is not question," said Brian Bethune, economist at Global Insight.
Forecasters at the National Association for Business Economics believe the worst of the housing slump and the credit crunch might end this year. The forecasters are hopeful that home sales will hit bottom this year. House prices, though, are still expected to drop this year and next. Some predict house prices won't turn up until the spring selling season of 2010.
Analysts also will be looking for zooming gasoline and other energy prices to settle down. Gasoline is approaching $4 a gallon on average nationally and oil has blown past $130 a barrel, from $100 at the beginning of the year. An easing of high food and other commodity prices also would be welcomed. High prices, especially for energy, are taking a bit out of paychecks, undermining consumer purchasing power, and putting a squeeze on businesses' profits.
Unlike the recessions in 2001 and 1990-1991, people, more so than businesses, are bearing the brunt of the economy's current woes.
"It is almost unprecedented in the post World War II perioud to have a recession be driven by a pullback in consumer spending, versus a pullback in business spending," said Mark Zandi, chief economist at Moody's Economy.com "This one is unique in that sense. Businesses are pulling back but they are more reacting to consumers." He's among those in the recession camp.
U.S. households are more in debt and under greater pressure to restrain spending. Zandi said the share of households' after-tax income that goes to serving their financial obligations was 19.3 percent in 2007. That was up from 17.9 percent in 2000 and 17.2 percent in 1989 - the years preceding the last two recessions.
In contrast, a debt-burden measure for nonfinancial businesses shows that 10 percent of their cash flow is going to interest payments on debt, Zandi said. That's down from around 25 percent in 2001 and 30 percent in the 1990-1991 recession, he said.
Against that backdrop, another barometer for economic revival would be a turn-around in sagging consumer confidence. The hope: if people cast off their gloomy mind-set, they'll be more likely to boost spending, which would energize the national economy.
The Fed has been hoping to turn consumer psychology and thus heal the economy through its most aggressive rate-cutting campaign in decades. The Bush administration is counting on those powerful rate reductions along with billions of dollars worth of rebate checks to lift the U.S. out of its slump in the second half of this year.
Fed officials viewed economic activity as "likely to be particularly weak in the first half of 2008; some rebound was anticipated in the second half of the year," according to Fed documents released Wednesday. Still, economic growth for the yar as a whole is likely to be feeble.
Even if that second-half rebound happens, businesses are likely to remain cautious in hiring, waiting for signs that any recovery has real staying power. The unemployment rate, now at 5 percent, could rise to 6 percent or higher next year, some economists said.
So the job market needs to get back to full throttle before the economy is truly back on firm footing. After the last two recessions, the country was still losing jobs as the economy struggled to recover.
Some believe the country will experience a "W" shaped recovery. That's wehre the economy picks up with the help of the stimulus, loses steam as that boost fades and then picks up again in the second half of 2009.
It's hard to say with certainty how it will turn out. Each period of economic stress "has its own kind of biography," Bethune said.
By Jeannine Aversa
Associated Press
WASHINGTON - With any luck, the second half of this year will be better than the so-far rocky first half. The Federal Reserve chief hopes that is the case. So does President Bush.
For the rest of us mere mortals, it feels like the pain is getting worse.
When the economy begins to snap out of its funk, how will we know?
Like calling a recession, pin-pointing the turnaround can be as much art as science. Economists agree there could be some strong signals to look for, however: A calmer stock market, an end to falling home prices and more jobs being created.
We're not there yet.
The economy by all accounts is suffering through difficult times, although some economists have backed off the recession talk. Economic growth has slowed sharply and employers have cut jobs for four months in a row as problems in housing, credit and financial markets forced skittish people and businesses alike to hunker down.
Even though a Labor Department report last week showed the number of newly laid off workers filing for unemployment benefits dropped to the lowest level in a month, claims remain high enough to indiate the labor makret is sluggish.
Still, there's hope that the economy's growth will begin picking up later this year.
Experts will be looking at a variety of barometers to mark the arrival of a rebound, but it's by no means definitive or foolproof.
One important indicator is the stock market. The turbulence taht has engulfed Wall Street since last summer and hit a crisis point with the near collapse of investment firm Bear Stearns, has calmed somewhat, but the situation is still "far from normal," Fed Chairman Ben Bernanke recently observed.
The Dow Jones industrial average, for instance, has clawed its way out of a recent bottom - 11,740.15 - hit in March. However, the index is still under 13,000, well below its peak of 14,087.55 set in early October of last year. Financial markets remain fragile.
Investors are looking ahead - at the economy's prospects and individual businesses - when they make investment decisions and are buying or selling stocks.
"The canary in the coal mine is really financial markets," said Sung Won Sohn, an economics professor at California State University. "The stock market recovery almost always precedes the economic recovery by about six months or so. The exception was in the 2001 recession. Because of the dot-com crisis, the stock market was so badly battered it took a while for it to get back to full speed," Sohn said. By his count, after the 2001 recession, the stock market lagged the economic recovery by one year.
In the current bout of economic troubles, though, fallout from the 2-year-old housing collapse and subsequent credit and financial problems has driven the pullback by consumers, businesses and Wall Street.
That's why economists - this time around - will be looking for signs of stabilization in the housing market. Specifically, house prices will have to stop falling or at least decline at a slower pace in many parts of the country. As many Americans have watched their single-biggest asset - their home - shrink in value, they have become much more cautious in the spending, contributing to the economy's slowdown.
On Thursday, the Office of Federal Housing Enterprise Oversight said U.S. home prices fell 3.1 percent year-over-year in the first quarter, the largest drop in the 17-year history of tracking the data.
House-price improvements also are important to a return to stability because house prices figure into the value of a host of securities, such as mortgage securities and derivatives.
And, improving house prices also would ripple through credit markets, making lenders more willing to make loans to people and businesses. That, in turn, would help bolster confidence in financial markets, economists said.
"Until the housing and credit markets improve, businesses and consumers will be doubting Thomases - there is not question," said Brian Bethune, economist at Global Insight.
Forecasters at the National Association for Business Economics believe the worst of the housing slump and the credit crunch might end this year. The forecasters are hopeful that home sales will hit bottom this year. House prices, though, are still expected to drop this year and next. Some predict house prices won't turn up until the spring selling season of 2010.
Analysts also will be looking for zooming gasoline and other energy prices to settle down. Gasoline is approaching $4 a gallon on average nationally and oil has blown past $130 a barrel, from $100 at the beginning of the year. An easing of high food and other commodity prices also would be welcomed. High prices, especially for energy, are taking a bit out of paychecks, undermining consumer purchasing power, and putting a squeeze on businesses' profits.
Unlike the recessions in 2001 and 1990-1991, people, more so than businesses, are bearing the brunt of the economy's current woes.
"It is almost unprecedented in the post World War II perioud to have a recession be driven by a pullback in consumer spending, versus a pullback in business spending," said Mark Zandi, chief economist at Moody's Economy.com "This one is unique in that sense. Businesses are pulling back but they are more reacting to consumers." He's among those in the recession camp.
U.S. households are more in debt and under greater pressure to restrain spending. Zandi said the share of households' after-tax income that goes to serving their financial obligations was 19.3 percent in 2007. That was up from 17.9 percent in 2000 and 17.2 percent in 1989 - the years preceding the last two recessions.
In contrast, a debt-burden measure for nonfinancial businesses shows that 10 percent of their cash flow is going to interest payments on debt, Zandi said. That's down from around 25 percent in 2001 and 30 percent in the 1990-1991 recession, he said.
Against that backdrop, another barometer for economic revival would be a turn-around in sagging consumer confidence. The hope: if people cast off their gloomy mind-set, they'll be more likely to boost spending, which would energize the national economy.
The Fed has been hoping to turn consumer psychology and thus heal the economy through its most aggressive rate-cutting campaign in decades. The Bush administration is counting on those powerful rate reductions along with billions of dollars worth of rebate checks to lift the U.S. out of its slump in the second half of this year.
Fed officials viewed economic activity as "likely to be particularly weak in the first half of 2008; some rebound was anticipated in the second half of the year," according to Fed documents released Wednesday. Still, economic growth for the yar as a whole is likely to be feeble.
Even if that second-half rebound happens, businesses are likely to remain cautious in hiring, waiting for signs that any recovery has real staying power. The unemployment rate, now at 5 percent, could rise to 6 percent or higher next year, some economists said.
So the job market needs to get back to full throttle before the economy is truly back on firm footing. After the last two recessions, the country was still losing jobs as the economy struggled to recover.
Some believe the country will experience a "W" shaped recovery. That's wehre the economy picks up with the help of the stimulus, loses steam as that boost fades and then picks up again in the second half of 2009.
It's hard to say with certainty how it will turn out. Each period of economic stress "has its own kind of biography," Bethune said.
Sometimes, our money illusions are shocking
The following Real World Economics column appeared on page 7D of the Sunday, May 25, 2008 issue of the St. Paul Pioneer Press.
By Ed Lotterman
I don't have a Ph.D., so perhaps that is why I occasionally suffer from "money delusion." But if other average Joes would be shocked by expensive fertilizer, as I recently was, some economic theories are on shaky ground.
"Money illusion" occurs when people make decisions based on nominal prices - the dolar figure printed on the invoice - rather than on "real" prices that are adjusted for inflation.
Money illusion is irrational. Many economists believe people are too samrk to be fooled by inflation in this way. Important theories depend on this belief.
I wasn't rational when I bought fertilizer one day about a week ago. I'm trying to keep alive some spruce planted in soil with a high pH. A forester friend said they might survive better if I acidified the soil around the tree.
One way to do that is with sulfur. The fertilizer-grade sulfer I bought when farming 30 years ago was a dusty powder. So I thought my current applications system - a five-gallon bucket and a tomato can - would work better if I mixed the sulfur with other ordinary fertilizer.
My local co-op mixed 50 pounds of sulfur with 300 pounds of potassium chloride. Now 350 pounds of fertilizer makes a very small pile in a pickup bed, so I was taken aback when the bill was $108.50. It was 27 cents-per-poun potash rather than 55-cent sulfur that tripped me up.
That was irrational. I am an economist. Every year I teach many students to adjust for inflation using price indexes. I make such calculations all the time. Yet I fell into the money illusion trap.
If someone had asked me what I used to pay for potash, I would have said about $90 a ton. How much higher might it be now? Perhaps it tripled, to $270 a ton.
It was exactly twice that, $540 a ton. I might have made a different decision if I had realized the bill would be that high.
Do workers make similar bad decisions about wages they accept? Do consumers ignore inflation when they consider alternate purchases or investments? Many economists, especially the monetarists and rational expectationists who are highly critical of government attempts to manage the economy, think not. Their theoretical models depend on nearly everyone being both well-informed and rational.
Would my naive money illusions change these theorists' minds? Probably not. They could argue that I was confused about a small item in our household spending, a minor hobby. A knitter returning to her craft after a hiatus of a few years similarly might be surprised by the price of yarn. But both of us, they would argue, probably know how our salaries are doing compared to inflation and how the prices of milk, bread and chicken breasts have changed.
Perhaps. Macroeconomic theories based on hyper-rationality were all the craze in the 1980s. More recently, microeconomists examining actual human behavior find that money illusion happens. Psychologist Amos Tversky provided strong evidence of this. If not for his untimely death, he would have shared the 2002 Nobel Prize for Economics with Daniel Kahneman.
This may seem neither here nor there for most people. In the meantime I need to scare up a couple bucks and run to the corner store for a gallon of milk.
By Ed Lotterman
I don't have a Ph.D., so perhaps that is why I occasionally suffer from "money delusion." But if other average Joes would be shocked by expensive fertilizer, as I recently was, some economic theories are on shaky ground.
"Money illusion" occurs when people make decisions based on nominal prices - the dolar figure printed on the invoice - rather than on "real" prices that are adjusted for inflation.
Money illusion is irrational. Many economists believe people are too samrk to be fooled by inflation in this way. Important theories depend on this belief.
I wasn't rational when I bought fertilizer one day about a week ago. I'm trying to keep alive some spruce planted in soil with a high pH. A forester friend said they might survive better if I acidified the soil around the tree.
One way to do that is with sulfur. The fertilizer-grade sulfer I bought when farming 30 years ago was a dusty powder. So I thought my current applications system - a five-gallon bucket and a tomato can - would work better if I mixed the sulfur with other ordinary fertilizer.
My local co-op mixed 50 pounds of sulfur with 300 pounds of potassium chloride. Now 350 pounds of fertilizer makes a very small pile in a pickup bed, so I was taken aback when the bill was $108.50. It was 27 cents-per-poun potash rather than 55-cent sulfur that tripped me up.
That was irrational. I am an economist. Every year I teach many students to adjust for inflation using price indexes. I make such calculations all the time. Yet I fell into the money illusion trap.
If someone had asked me what I used to pay for potash, I would have said about $90 a ton. How much higher might it be now? Perhaps it tripled, to $270 a ton.
It was exactly twice that, $540 a ton. I might have made a different decision if I had realized the bill would be that high.
Do workers make similar bad decisions about wages they accept? Do consumers ignore inflation when they consider alternate purchases or investments? Many economists, especially the monetarists and rational expectationists who are highly critical of government attempts to manage the economy, think not. Their theoretical models depend on nearly everyone being both well-informed and rational.
Would my naive money illusions change these theorists' minds? Probably not. They could argue that I was confused about a small item in our household spending, a minor hobby. A knitter returning to her craft after a hiatus of a few years similarly might be surprised by the price of yarn. But both of us, they would argue, probably know how our salaries are doing compared to inflation and how the prices of milk, bread and chicken breasts have changed.
Perhaps. Macroeconomic theories based on hyper-rationality were all the craze in the 1980s. More recently, microeconomists examining actual human behavior find that money illusion happens. Psychologist Amos Tversky provided strong evidence of this. If not for his untimely death, he would have shared the 2002 Nobel Prize for Economics with Daniel Kahneman.
This may seem neither here nor there for most people. In the meantime I need to scare up a couple bucks and run to the corner store for a gallon of milk.
Fed researchers say rate cuts risk spurring inflation
The following appeared on page 2C of the Saturday May 24, 2008 issue of the St. Paul Pioneer Press.
The Federal Reserve's interest rate reductions risk "unhinging" long-term market expectations for monetary policy and inflation, according to researchers at the Fed's district bank in Minneapolis.
Expectations for the stability of long-term interest rates are "particularly relevant given the recent conflict at the Fed between fighting rising inflation and stimulating a potentially stagnating economy," Andrew Atkeson, a consultant to the bank, and monetary adviser Patrick Kehoe wrote in a paper that appears on the Minneapolis Fed's Web site.
The economists echoes concerns of Fed district bank presidents, in cluding Richard Fisher of Dallas and Charles Plosser of Philadelphia, who recently said the central bank should avoid fueling inflation while trying to revive bank lending and economic growth following the collapse of the subprime-mortgage market.
Plosser and Fisher dissented from the decision by the central bank last month to pare the target rate for overnight loans between banks by 0.25 percentage point. The Fed has cut the rate by 2.25 percentage points to 2 percent this year in the most aggressive reductions in two decades.
The Federal Reserve's interest rate reductions risk "unhinging" long-term market expectations for monetary policy and inflation, according to researchers at the Fed's district bank in Minneapolis.
Expectations for the stability of long-term interest rates are "particularly relevant given the recent conflict at the Fed between fighting rising inflation and stimulating a potentially stagnating economy," Andrew Atkeson, a consultant to the bank, and monetary adviser Patrick Kehoe wrote in a paper that appears on the Minneapolis Fed's Web site.
The economists echoes concerns of Fed district bank presidents, in cluding Richard Fisher of Dallas and Charles Plosser of Philadelphia, who recently said the central bank should avoid fueling inflation while trying to revive bank lending and economic growth following the collapse of the subprime-mortgage market.
Plosser and Fisher dissented from the decision by the central bank last month to pare the target rate for overnight loans between banks by 0.25 percentage point. The Fed has cut the rate by 2.25 percentage points to 2 percent this year in the most aggressive reductions in two decades.
AP: Existing home sales continue slide in April
The following appeared on page 2C of the Saturday May 24, 2008 issue of the St. Paul Pioneer Press.
Existing home sales fell for the eighth time in the past nine months, a string of weakness expected to continue as the housing industry, mired in its worst slump in decades, battles falling home prices, tight lending conditions and a weak economy.
The National Association of Realtors reported Friday that existing home sales dropped by 1 percent to a seasonally adjusted annual rate of 4.89 million units, matching the all time low set in January. These records, which cover single-family homes and condominiums, go back to 1999.
The median price for an existing home dropped 8 percent, compared with a year ago, to $202,300. It was the second largest price decline on record and analysts predicted prices would fall further in the months ahead given the huge backlog of unsold single-family homes.
The number of unsold single-family homes in April rose to a 10.7 months suply at the current sales pace, the highest level since June 1985.
As prices fall, it keeps more people sitting on the fence, analysts said, because prospective buyers don't want to purchase an asset that has the potential to fall further in price if they delay making the purchase.
Existing home sales fell for the eighth time in the past nine months, a string of weakness expected to continue as the housing industry, mired in its worst slump in decades, battles falling home prices, tight lending conditions and a weak economy.
The National Association of Realtors reported Friday that existing home sales dropped by 1 percent to a seasonally adjusted annual rate of 4.89 million units, matching the all time low set in January. These records, which cover single-family homes and condominiums, go back to 1999.
The median price for an existing home dropped 8 percent, compared with a year ago, to $202,300. It was the second largest price decline on record and analysts predicted prices would fall further in the months ahead given the huge backlog of unsold single-family homes.
The number of unsold single-family homes in April rose to a 10.7 months suply at the current sales pace, the highest level since June 1985.
As prices fall, it keeps more people sitting on the fence, analysts said, because prospective buyers don't want to purchase an asset that has the potential to fall further in price if they delay making the purchase.
Friday, May 23, 2008
Dave Ramsey's Thoughts on Gas Prices
Thoughts on Gas Prices
By Dave Ramsey
www.daveramsey.com
Gasoline has gone up 26% since this time last year. SHOCKER! Since most of us are used to daily commutes, running the kids here and there for their various activities, and visiting friends and family, this price increase is affecting us. The Consumer Price Index figures say this is the number one thing that's gone up in our household budgets this year — and it's only May!
"But there's nothing I can do," some say. I say, "Oh, yes there is!"
It's time to revisit the budget.
When I tell people this, some tell me they've crunched their budgets as much as they can. Then I ask, "How much is your car payment? ... How much is your monthly cable or satellite bill? ... Is the Starbucks drive-thru a regular stop on your morning commute?"
I hate to break it to you, but new cars, cable, and Starbucks are luxuries, NOT necessities! You can easily survive with a used (and paid-for!) car, no cable reality shows, and coffee made at home. Just think of all that money you could use to pay off debt and put toward your gasoline money for the month if you did just those 3 things!
Earlier this month, an algebra teacher in Michigan sent me a great email that I read on the radio show. She wrote:
Dave, I often give my math students this calculation to figure out. A typical latte costs $3.59 for 16 oz. That's 22 cents per ounce or $28.72 a gallon! Ask your listeners if they've drank a gallon of latte lately! Read the blog
HOLY COW! If that doesn't put things into perspective, I don't know what will!
First Things First
You must remember there IS a difference between needs and wants in life. The first things at the top of your budget should be your needs: shelter, food, transportation, clothing, and utilities. If you currently go to the movie theatre every weekend or have a Hawaiian vacation at the top of your list when you struggle to pay the electric bill, your priorities are out of wack. Don't sacrifice your needs to finance your wants. If you do, it will catch up with you and you'll regret it.
Plan Ahead
You can also strategically plan ahead when running errands and commuting to work. If you go to the grocery store twice a week, reorganize your list so you only have to go once a week. If you have a lot of errands to run, plan your route ahead of time so you're not retracing your steps around town. You could also organize a carpool with some of your coworkers who live near you.
June will be here before you know it, so go have a Budget Committee Meeting right now to see where you can free up some more money — because every little bit adds up when gas is $4 a gallon!
By Dave Ramsey
www.daveramsey.com
Gasoline has gone up 26% since this time last year. SHOCKER! Since most of us are used to daily commutes, running the kids here and there for their various activities, and visiting friends and family, this price increase is affecting us. The Consumer Price Index figures say this is the number one thing that's gone up in our household budgets this year — and it's only May!
"But there's nothing I can do," some say. I say, "Oh, yes there is!"
It's time to revisit the budget.
When I tell people this, some tell me they've crunched their budgets as much as they can. Then I ask, "How much is your car payment? ... How much is your monthly cable or satellite bill? ... Is the Starbucks drive-thru a regular stop on your morning commute?"
I hate to break it to you, but new cars, cable, and Starbucks are luxuries, NOT necessities! You can easily survive with a used (and paid-for!) car, no cable reality shows, and coffee made at home. Just think of all that money you could use to pay off debt and put toward your gasoline money for the month if you did just those 3 things!
Earlier this month, an algebra teacher in Michigan sent me a great email that I read on the radio show. She wrote:
Dave, I often give my math students this calculation to figure out. A typical latte costs $3.59 for 16 oz. That's 22 cents per ounce or $28.72 a gallon! Ask your listeners if they've drank a gallon of latte lately! Read the blog
HOLY COW! If that doesn't put things into perspective, I don't know what will!
First Things First
You must remember there IS a difference between needs and wants in life. The first things at the top of your budget should be your needs: shelter, food, transportation, clothing, and utilities. If you currently go to the movie theatre every weekend or have a Hawaiian vacation at the top of your list when you struggle to pay the electric bill, your priorities are out of wack. Don't sacrifice your needs to finance your wants. If you do, it will catch up with you and you'll regret it.
Plan Ahead
You can also strategically plan ahead when running errands and commuting to work. If you go to the grocery store twice a week, reorganize your list so you only have to go once a week. If you have a lot of errands to run, plan your route ahead of time so you're not retracing your steps around town. You could also organize a carpool with some of your coworkers who live near you.
June will be here before you know it, so go have a Budget Committee Meeting right now to see where you can free up some more money — because every little bit adds up when gas is $4 a gallon!
Monday, May 19, 2008
Treasury head sees economy rebounding in late 2008
The following appeared on page 2C of the Saturday May 17, 2008 issue of the St. Paul Pioneer Press.
Treasury Secretary Henry Paulson said Friday that financial markets are "considerably calmer" now than they were two months ago. He predicted the economy will rebound by the second half of this year. In a speech to business executives in Washington, Paulson said the drag from housing, which he characterized as still the biggest risk to the economy, will soon be lessened by nearly $100 billion in economic stimulus payments to U.S. households.
"The fiscal stimulus will provide support to the economy as we weather the housing correction, capital-markets turmoil and higher energy and food prices," Paulson said in his prepared remarks.
The economy has been pushed to the brink of a recession by a prolonged housing slump, a credit crisis, soaring energy prices and more than a quarter-million layoffs over the past four months. In his remakrs, Paulson never used the word recession, although many private economists believe the country is in one.
Treasury Secretary Henry Paulson said Friday that financial markets are "considerably calmer" now than they were two months ago. He predicted the economy will rebound by the second half of this year. In a speech to business executives in Washington, Paulson said the drag from housing, which he characterized as still the biggest risk to the economy, will soon be lessened by nearly $100 billion in economic stimulus payments to U.S. households.
"The fiscal stimulus will provide support to the economy as we weather the housing correction, capital-markets turmoil and higher energy and food prices," Paulson said in his prepared remarks.
The economy has been pushed to the brink of a recession by a prolonged housing slump, a credit crisis, soaring energy prices and more than a quarter-million layoffs over the past four months. In his remakrs, Paulson never used the word recession, although many private economists believe the country is in one.
Saturday, May 17, 2008
Repo Madness
The following appeared on page 1A of the Tuesday May 13, 2008 issue of the St. Paul Pioneer Press.
Late on a car payment? Beware. Delinquencies are rising, and impatient lenders aren't waiting long to call out the tow trucks.
By Jennifer Bjorhus and Nicole Garrison-Sprenger
Pioneer Press
It's 3 a.m. - do you know where your car is? If you're late on payments, your local towing company probably does.
High and rising auto-loan delinquencies, now above 2001 recession levels by one measure, are speeding u action in the repossession lane. Some Twin Cities car and truck towing companies are reporting a significant uptick in orders from lenders, which they attribute to mounting economic ressures on stretched borrowers.
But accelerating debt collection by lenders appears to be another factor in the rise of repossessions. The country's top auto lender, for instance, said it is cracking down on delinquencies and "moving up the timeline" on recovering unpaid debt.
It's not just the auto industry that's getting more aggressive. Some department stores and retailers are accelerating action on delinquent accounts, according to a Twin Cities debt collectors association, because they too need the cash to pay bills.
All Corey Albertson knows is business is hot after a slow winter.
"Probably in the last four weeks our fax machine started kind of getting bombarded with more repossessions," said Albertson, president of American Towing and Recovery in Hastings.
Auto lenders pay Albertson $300 to $500 to tow away cars and trucks, typically after borrowers are 90 days late on payments. Like other companies, his crew usually works from 2 a.m. to 5 a.m.
"That way, most people are in bed and don't see us coming," Albertson said.
Many of the car owners Albertson deals with are families with two or more vehicles who are prioritizing bills and let the extra car slide, although he recently repo'd the cars of a husband/wife Realtor team in Shakopee who lost their Cadillac and Jaguar. Albertson said he's repossessing more SUVs and trucks than before, which he attributes to the escalating cost of filling up the tanks.
Across the board, nearly all the auto lenders Albertson works with have boosted orders recently, he said. But he's seen particular growth with First 1 Financial Corp., a subprime auto financer out of Massachusetts. First 1 Financial didn't return phone calls.
Missy McMurray, owner of an American Lenders Service Co. franchise in St. Paul and Hudson, Wis., said her Minnesota vehicle repo accounts nearly doubled in the first quarter from a year ago. There's been a notable increase in semi-truck repos, said McMurray, who also attributes it to rising fuel costs. McMurray declined to name the lenders she works with.
"I just think more people are falling behind," she said.
Some auto lenders have responded accordingly.
Bobbie Britting, senior analyst in consumer lending at Needham, Mass.-based researcher TowerGroup, said auto lenders are "not waiting as long as they used to" on delinquencies. That varies by the type of portfolio, she said, such as whether it's prime or subprime loans to borrowers with poorer credit.
Detroit-based GMAC Financial Services, the nation's largest auto lender, told analysts in a February conference call that it has added 400 collections associates and has accelerated contact with borrowers. Spokesman Mike Stoller said in an interview that most auto finance companies contact consumers with a letter or call after a borrower is 30 to 45 days late on a payment. If payment is still due after 90 days, lenders turn to more aggressive tactics.
"While repossession isn't likely to happen on day 91, that kind of activity comes into play," Stoller said.
Banks are in "clean-up mode," Mike Jackson, chief executive of Fort Lauderdale, Fla.-based AutoNation, told analysts two weeks ago. Lenders are "accelerating repossessions on any vehicle that they see out there that has a question mark over it. They are proactively trying to deal with it now rather than later," said Jackson, whose company is the country's largest auto dealer.
Along with the uptick go disputes. At least one Twin Cities attorney reports more wrongful repo calls coming in. Tom Lyons Jr., president of the Consumer Justice Center, a Vadnais Heights law firm, said he's preparing to file two such cases. In one, a Hugo woman alleges she climbed into her car in her attached garage to go to work early one recent morning, and after she opened the garage door, a repo crew raced in and dragged her out of the car.
"I think the banks are getting more aggressive on their willingness to wait for consumers to catch u," Lyons said.
Not everyone is rolling in new orders. "The business is either chicken one day or feathers the next," said Dale Hedtke, owner of Midwest Recovery Bureau Inc in Maple Grove.
National Asset Recovery Group in Wayzata, which specializes in repo'ing heavy equipment, aircraft, RVs and large boats, said business is up, but the repo trends are different for larger vehicles.
President Dan Paselk said his boat business is up at least 15 percent from last year. He attributes most of the surge, at the moment, not to eager lenders but to the fact boat owners recently hauled their big toys out of storage, where repo crews cannot easily get to them and have them parked on the water.
Lenders are less aggressive about repossessing such large equipment because they're much harder to liquidate in a slow economy than cars and trucks, Paselk said. Some lenders are rewriting loans on these big-ticket items, doing what they can to accommodate strapped borrowers, he said, because they don't want the equipment back.
"if they get back a Caterpillar and they have a $50,000 loan on it, they're better off rewriting the loan than running it through the auction," said Paselk. "These big-ticket items aren't selling."
Consumer lenders are going after rising delinquencies harder. Rozanne Andersen of ACA Internation, an Edina-based debt collectors association, said she sees a growing number of department store and smaller retailers both locally and nationally cracking down on delinquent accounts by starting the collections and recovery process much sooner. Most companies opting to accelerate the start of the debt collection process are cutting down the time they're willing to wait for payment by one-third, Andersen said.
"Businesses are in need of cash," she said. "They have determined they cannot afford to wait as long as they may have in the past before sending a debt to collection."
Albertson, at American Towing, said he feels the pinch of high fuel costs as his trucks rumble about picking up vehicles.
"I used to drive a Lexus SUV, and I sold it, and I went out and bought an older Honda Civic," he said. "It's a huge step down, but you have to."
Late on a car payment? Beware. Delinquencies are rising, and impatient lenders aren't waiting long to call out the tow trucks.
By Jennifer Bjorhus and Nicole Garrison-Sprenger
Pioneer Press
It's 3 a.m. - do you know where your car is? If you're late on payments, your local towing company probably does.
High and rising auto-loan delinquencies, now above 2001 recession levels by one measure, are speeding u action in the repossession lane. Some Twin Cities car and truck towing companies are reporting a significant uptick in orders from lenders, which they attribute to mounting economic ressures on stretched borrowers.
But accelerating debt collection by lenders appears to be another factor in the rise of repossessions. The country's top auto lender, for instance, said it is cracking down on delinquencies and "moving up the timeline" on recovering unpaid debt.
It's not just the auto industry that's getting more aggressive. Some department stores and retailers are accelerating action on delinquent accounts, according to a Twin Cities debt collectors association, because they too need the cash to pay bills.
All Corey Albertson knows is business is hot after a slow winter.
"Probably in the last four weeks our fax machine started kind of getting bombarded with more repossessions," said Albertson, president of American Towing and Recovery in Hastings.
Auto lenders pay Albertson $300 to $500 to tow away cars and trucks, typically after borrowers are 90 days late on payments. Like other companies, his crew usually works from 2 a.m. to 5 a.m.
"That way, most people are in bed and don't see us coming," Albertson said.
Many of the car owners Albertson deals with are families with two or more vehicles who are prioritizing bills and let the extra car slide, although he recently repo'd the cars of a husband/wife Realtor team in Shakopee who lost their Cadillac and Jaguar. Albertson said he's repossessing more SUVs and trucks than before, which he attributes to the escalating cost of filling up the tanks.
Across the board, nearly all the auto lenders Albertson works with have boosted orders recently, he said. But he's seen particular growth with First 1 Financial Corp., a subprime auto financer out of Massachusetts. First 1 Financial didn't return phone calls.
Missy McMurray, owner of an American Lenders Service Co. franchise in St. Paul and Hudson, Wis., said her Minnesota vehicle repo accounts nearly doubled in the first quarter from a year ago. There's been a notable increase in semi-truck repos, said McMurray, who also attributes it to rising fuel costs. McMurray declined to name the lenders she works with.
"I just think more people are falling behind," she said.
Some auto lenders have responded accordingly.
Bobbie Britting, senior analyst in consumer lending at Needham, Mass.-based researcher TowerGroup, said auto lenders are "not waiting as long as they used to" on delinquencies. That varies by the type of portfolio, she said, such as whether it's prime or subprime loans to borrowers with poorer credit.
Detroit-based GMAC Financial Services, the nation's largest auto lender, told analysts in a February conference call that it has added 400 collections associates and has accelerated contact with borrowers. Spokesman Mike Stoller said in an interview that most auto finance companies contact consumers with a letter or call after a borrower is 30 to 45 days late on a payment. If payment is still due after 90 days, lenders turn to more aggressive tactics.
"While repossession isn't likely to happen on day 91, that kind of activity comes into play," Stoller said.
Banks are in "clean-up mode," Mike Jackson, chief executive of Fort Lauderdale, Fla.-based AutoNation, told analysts two weeks ago. Lenders are "accelerating repossessions on any vehicle that they see out there that has a question mark over it. They are proactively trying to deal with it now rather than later," said Jackson, whose company is the country's largest auto dealer.
Along with the uptick go disputes. At least one Twin Cities attorney reports more wrongful repo calls coming in. Tom Lyons Jr., president of the Consumer Justice Center, a Vadnais Heights law firm, said he's preparing to file two such cases. In one, a Hugo woman alleges she climbed into her car in her attached garage to go to work early one recent morning, and after she opened the garage door, a repo crew raced in and dragged her out of the car.
"I think the banks are getting more aggressive on their willingness to wait for consumers to catch u," Lyons said.
Not everyone is rolling in new orders. "The business is either chicken one day or feathers the next," said Dale Hedtke, owner of Midwest Recovery Bureau Inc in Maple Grove.
National Asset Recovery Group in Wayzata, which specializes in repo'ing heavy equipment, aircraft, RVs and large boats, said business is up, but the repo trends are different for larger vehicles.
President Dan Paselk said his boat business is up at least 15 percent from last year. He attributes most of the surge, at the moment, not to eager lenders but to the fact boat owners recently hauled their big toys out of storage, where repo crews cannot easily get to them and have them parked on the water.
Lenders are less aggressive about repossessing such large equipment because they're much harder to liquidate in a slow economy than cars and trucks, Paselk said. Some lenders are rewriting loans on these big-ticket items, doing what they can to accommodate strapped borrowers, he said, because they don't want the equipment back.
"if they get back a Caterpillar and they have a $50,000 loan on it, they're better off rewriting the loan than running it through the auction," said Paselk. "These big-ticket items aren't selling."
Consumer lenders are going after rising delinquencies harder. Rozanne Andersen of ACA Internation, an Edina-based debt collectors association, said she sees a growing number of department store and smaller retailers both locally and nationally cracking down on delinquent accounts by starting the collections and recovery process much sooner. Most companies opting to accelerate the start of the debt collection process are cutting down the time they're willing to wait for payment by one-third, Andersen said.
"Businesses are in need of cash," she said. "They have determined they cannot afford to wait as long as they may have in the past before sending a debt to collection."
Albertson, at American Towing, said he feels the pinch of high fuel costs as his trucks rumble about picking up vehicles.
"I used to drive a Lexus SUV, and I sold it, and I went out and bought an older Honda Civic," he said. "It's a huge step down, but you have to."
Friday, May 16, 2008
Foreclosure filings rise 65% in April
The following appeared on page 2C of the Thursday May 15, 2008 issue of the St. Paul Pioneer Press.
More U.S. homeowners fell behind on mortgage payments last month, driving the number of homes facing foreclosure up 65 percent versus the same month last year and contributing to a deepening slide in home values, a research company said Tuesday. Nationwide, 243,353 homes received at least one foreclosure-related filing in April, up 65 percent from 147,708 in the same month last year and up 4 percent since March, RealtyTrac Inc. said.
Nevada, Arizona, California and Florida were among the hardest hit states, with metropolitan areas in California and Florida accounting for nine of the top 10 areas with the higest rate of foreclosure, the company said. Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions.
One in every 519 U.S. households received a foreclosure filing in April. Foreclosure filings increased from a year earlier in all but eight states.
More U.S. homeowners fell behind on mortgage payments last month, driving the number of homes facing foreclosure up 65 percent versus the same month last year and contributing to a deepening slide in home values, a research company said Tuesday. Nationwide, 243,353 homes received at least one foreclosure-related filing in April, up 65 percent from 147,708 in the same month last year and up 4 percent since March, RealtyTrac Inc. said.
Nevada, Arizona, California and Florida were among the hardest hit states, with metropolitan areas in California and Florida accounting for nine of the top 10 areas with the higest rate of foreclosure, the company said. Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions.
One in every 519 U.S. households received a foreclosure filing in April. Foreclosure filings increased from a year earlier in all but eight states.
Default swaps carry uncertain risks
The following Edward Lotterman "Real World Economics" column was published on page 1C of the Thursday May 15, 2008 issue of the St. Paul Pioneer Press.
It is dangerous when anyone plunges into business deals they don't fully understand. Over the past 25 years, the securities industry has developed myriad new financial instruments intended to better manage risk. But it's becoming clear that not everyone dealing in these securities really knows the risks relative to the rewards.
Most people have never heard of a "credit default swap," but they're making news as the risks posed by such once-obscure financial instruments gain visibility.
A credit default swap is insurance against loss from default on another financial instrument. Suppose you own a corporate bond. It is highly likely the corporation will make all promised principal and interest payments. But you want to be sure, so you make periodic payments to a third party who agrees to make good your loss in the unlikely event that the bond goes bad.
This is little different from insurance on houses. I don't expect my house to burn down or blow away, but I am willing to pay several hundred dollars a year for the right to be reimbursed if that does happen.
At this basic level, a credit default swap is straight-forward and useful. One party wants to reduce their risk and is willing to pay a premium to do so. Someone else is willing to assume risk for a fee. Both can be better off in the long run.
But such swaps do differ from insurance in important ways. Insurance companies won't write policies unless the buyer has an "insurable interest." I can buy a policy on my own house, but I cannot go out and buy a policy on Joe Blow's house three blocks down the street. I can insure my own life, but I cannot buy policies that will pay me if Tom Hanks or Tiger Woods dies.
One can, however, either buy or sell protection against a bond defaulting even when neither you nor your counter-party actually owns the bond.
Moreover, default swaps fail a classic test for separating "investors" or "hedgers" from "speculators." Is a given party always on the same side of the transaction or not? Homeowners always are insurance buyers. Insurance companies always are sellers. Grain elevators contract to sell wheat in the future. Flour millers usually contract to buy.
But a financial institution may sell default protection on a bond one week and buy it for the same bond a week later, depending on its assessment of which side is more profitable.
The number of houses in a country limits the volume of mortgage lending. The borrowing needs of governments and corporations limits the number of bonds issued. The number and size of corporations limits the total value of shares of stock. A country's total stock of buildings puts an upper limit on how much property insurance can be sold.
But there is no limit to the volume of credit default swaps that can exist at any time. And their growth has been enormous.
In 1994, there were some $45 billion in such swaps. By 1998, that had quadrupled to $180 billion. Over the next six years the volume increased 44 times to $8 trillion. It is now estimated at $45 trillion, three times the U.S. Gross Domestic Product.
So what, you may ask. Why should the fact that large financial institutions have made large bets on unlikely events affect the average family?
There need not be any effect if all of the players in the credit default swaps market have correctly estimated the underlying risks, and if the prices paid for swaps fully reflect that risk. As long as everyone involved holds up their end of the bargain, come what may, these swaps need not affect the real economy.
However, the ongoing collateralized mortgage debacle demonstrates that financial institutions can be way off base in pricing new, poorly understood securities. Moreover, it is clear that many of the institutions that have jumped on the credit swap bandwagon, including obscure banks in Africa and Asia, don't have the financial wherewithal to pay up if some insured default actually occurs.
When financial institutions lose trust that other parties in deals are willing and able to carry through on commitments, fear comes to dominate markets and they seize up.
That is what happened to commercial paper last August and September. Fear that Bear Sterns no longer was a reliable counterparty is what brought that firm from apparent strength to near bankruptcy in days in March.
As with many other financial sector innovations, the horse is long out the door. There isn't much government can do right now to reduce the threat default swaps pose for the broader economy. We can hope that participants can unwind their positions smoothly in coming months, allowing firms' exposure to drop, without anyone going broke in the process. But don't count on it.
It is dangerous when anyone plunges into business deals they don't fully understand. Over the past 25 years, the securities industry has developed myriad new financial instruments intended to better manage risk. But it's becoming clear that not everyone dealing in these securities really knows the risks relative to the rewards.
Most people have never heard of a "credit default swap," but they're making news as the risks posed by such once-obscure financial instruments gain visibility.
A credit default swap is insurance against loss from default on another financial instrument. Suppose you own a corporate bond. It is highly likely the corporation will make all promised principal and interest payments. But you want to be sure, so you make periodic payments to a third party who agrees to make good your loss in the unlikely event that the bond goes bad.
This is little different from insurance on houses. I don't expect my house to burn down or blow away, but I am willing to pay several hundred dollars a year for the right to be reimbursed if that does happen.
At this basic level, a credit default swap is straight-forward and useful. One party wants to reduce their risk and is willing to pay a premium to do so. Someone else is willing to assume risk for a fee. Both can be better off in the long run.
But such swaps do differ from insurance in important ways. Insurance companies won't write policies unless the buyer has an "insurable interest." I can buy a policy on my own house, but I cannot go out and buy a policy on Joe Blow's house three blocks down the street. I can insure my own life, but I cannot buy policies that will pay me if Tom Hanks or Tiger Woods dies.
One can, however, either buy or sell protection against a bond defaulting even when neither you nor your counter-party actually owns the bond.
Moreover, default swaps fail a classic test for separating "investors" or "hedgers" from "speculators." Is a given party always on the same side of the transaction or not? Homeowners always are insurance buyers. Insurance companies always are sellers. Grain elevators contract to sell wheat in the future. Flour millers usually contract to buy.
But a financial institution may sell default protection on a bond one week and buy it for the same bond a week later, depending on its assessment of which side is more profitable.
The number of houses in a country limits the volume of mortgage lending. The borrowing needs of governments and corporations limits the number of bonds issued. The number and size of corporations limits the total value of shares of stock. A country's total stock of buildings puts an upper limit on how much property insurance can be sold.
But there is no limit to the volume of credit default swaps that can exist at any time. And their growth has been enormous.
In 1994, there were some $45 billion in such swaps. By 1998, that had quadrupled to $180 billion. Over the next six years the volume increased 44 times to $8 trillion. It is now estimated at $45 trillion, three times the U.S. Gross Domestic Product.
So what, you may ask. Why should the fact that large financial institutions have made large bets on unlikely events affect the average family?
There need not be any effect if all of the players in the credit default swaps market have correctly estimated the underlying risks, and if the prices paid for swaps fully reflect that risk. As long as everyone involved holds up their end of the bargain, come what may, these swaps need not affect the real economy.
However, the ongoing collateralized mortgage debacle demonstrates that financial institutions can be way off base in pricing new, poorly understood securities. Moreover, it is clear that many of the institutions that have jumped on the credit swap bandwagon, including obscure banks in Africa and Asia, don't have the financial wherewithal to pay up if some insured default actually occurs.
When financial institutions lose trust that other parties in deals are willing and able to carry through on commitments, fear comes to dominate markets and they seize up.
That is what happened to commercial paper last August and September. Fear that Bear Sterns no longer was a reliable counterparty is what brought that firm from apparent strength to near bankruptcy in days in March.
As with many other financial sector innovations, the horse is long out the door. There isn't much government can do right now to reduce the threat default swaps pose for the broader economy. We can hope that participants can unwind their positions smoothly in coming months, allowing firms' exposure to drop, without anyone going broke in the process. But don't count on it.
Saturday, May 10, 2008
AP: Trade deficit narrows more than expected
The following appeared in the Saturday May 10, 2008 issue of the St. Paul Pioneer Press, Page 2C.
The U.S. trade deficit narrowed sharply in March as demand for imports ell by the largest amount since the last recession was ending. Analysts forecast that trade would continue to be one of the economy's few bright spots this year.
The March deficit totaled $58.2 billion, down 5.7 percent from February, the Commerce Department reported Friday. It was a much larger improvement than had been expected.
Imports totaled $206.7 billion in March, down $6.1 billion from the February level, a drop led by a 5.9 percent decrease in America's foreign oil bill.
Exports, which have been one of the few strong points in this period of weakness, dipped 1.7 percent in March to $148.5 billion, but that was still the second-highest level on record. For the first three months of this year, exports were up 17.6 percent over the same period a year ago.
The U.S. trade deficit narrowed sharply in March as demand for imports ell by the largest amount since the last recession was ending. Analysts forecast that trade would continue to be one of the economy's few bright spots this year.
The March deficit totaled $58.2 billion, down 5.7 percent from February, the Commerce Department reported Friday. It was a much larger improvement than had been expected.
Imports totaled $206.7 billion in March, down $6.1 billion from the February level, a drop led by a 5.9 percent decrease in America's foreign oil bill.
Exports, which have been one of the few strong points in this period of weakness, dipped 1.7 percent in March to $148.5 billion, but that was still the second-highest level on record. For the first three months of this year, exports were up 17.6 percent over the same period a year ago.
Friday, May 9, 2008
Newest National Debt Statistics posted
The National Debt as of May 8, 2008
Held by Public: $5,227,965,998,741.94
Intragovernmental Holdings: $4,136,827,077,212.01
Total (May 8, 2008): $9,364,793,075,953.95
Interest Payments
April 2008 - $22,362,345,451.78
FY to date - $243,903,652,968.47
Gifts to reduce the public debt
March 2008 - $517,816.28
FY to date - $1,405,285.81
Source: www.treasurydirect.gov
Held by Public: $5,227,965,998,741.94
Intragovernmental Holdings: $4,136,827,077,212.01
Total (May 8, 2008): $9,364,793,075,953.95
Interest Payments
April 2008 - $22,362,345,451.78
FY to date - $243,903,652,968.47
Gifts to reduce the public debt
March 2008 - $517,816.28
FY to date - $1,405,285.81
Source: www.treasurydirect.gov
Wednesday, May 7, 2008
AP: Steel pennies make cents to lawmaker
The following Associated Press story appeared on page 3A of the Wednesday May 7, 2008 issue of the St. Paul Pioneer Press.
WASHINGTON - Further evidence that times are tough: It now costs more than a penny to make a penny. And the cost of a nickel is more than 7-1/2 cents.
Surging prices for copper, zinc and nickel have some in Congress trying to bring back the steel-made pennies of World War II, and maybe using steel for nickels, as well.
"With each penny and nickel we issue, we will be contributing to our national debt by almost as much as the coin is worth," said Rep. Luis Gutierrez, D-Ill., who chairs the House panel that oversees the U.S. Mint.
Copper and Nickel prices have tripled since 2003 and the price of zinc has quadrupled.
A penny, which consists of 97.5 percent zinc and 2.5 percent copper, cost 1.26 cents to make as of Tuesday. And a nickel - 75 percent copper and the rest nickel - costs 7.7 cents, based on current commodity prices, according to the Mint.
That's down from the end of the 2007, when even higher metal prices drove the penny's cost to 1.67 cents. The cost of making a nickel then was nearly a dime.
Gutierrez estimated sriking the two coins at costs well above their face value set the Treasury and taxpayers back about $100 million last year alone. A lousy deal, lawmakers have concluded. On Tuesday, the House debated a bill that directs the Treasury secretary to "prescribe" - suggest - a new, more economical composition of the nickel and the penny. A vote is expected later in the week.
Unsaid in the legislation is the Constitution's delegation of power to Congress "to coin money (and) regulate the vlaue thereof."
The Bush administration, like others before, chafes at that.
Mint Director Edmund Moy told House Financial Services Chairman Barney Frank, D-Mass., that the Treasury Department opposes the bill as "too prescriptive" in part because it does not explicitly delegate the power to decide the new coin composition.
Sen. Wayne Allard, R-Colo., is expected to present the Senate with a version more acceptable to the administration in the next few weeks.
Other coins still cost less than their face value. The dime costs a little over 4 cents to make. The quarter costs almost 10 cents. The dollar coin, meanwhile, costs about 16 cents to make, the Mint said. - Associated Press
WASHINGTON - Further evidence that times are tough: It now costs more than a penny to make a penny. And the cost of a nickel is more than 7-1/2 cents.
Surging prices for copper, zinc and nickel have some in Congress trying to bring back the steel-made pennies of World War II, and maybe using steel for nickels, as well.
"With each penny and nickel we issue, we will be contributing to our national debt by almost as much as the coin is worth," said Rep. Luis Gutierrez, D-Ill., who chairs the House panel that oversees the U.S. Mint.
Copper and Nickel prices have tripled since 2003 and the price of zinc has quadrupled.
A penny, which consists of 97.5 percent zinc and 2.5 percent copper, cost 1.26 cents to make as of Tuesday. And a nickel - 75 percent copper and the rest nickel - costs 7.7 cents, based on current commodity prices, according to the Mint.
That's down from the end of the 2007, when even higher metal prices drove the penny's cost to 1.67 cents. The cost of making a nickel then was nearly a dime.
Gutierrez estimated sriking the two coins at costs well above their face value set the Treasury and taxpayers back about $100 million last year alone. A lousy deal, lawmakers have concluded. On Tuesday, the House debated a bill that directs the Treasury secretary to "prescribe" - suggest - a new, more economical composition of the nickel and the penny. A vote is expected later in the week.
Unsaid in the legislation is the Constitution's delegation of power to Congress "to coin money (and) regulate the vlaue thereof."
The Bush administration, like others before, chafes at that.
Mint Director Edmund Moy told House Financial Services Chairman Barney Frank, D-Mass., that the Treasury Department opposes the bill as "too prescriptive" in part because it does not explicitly delegate the power to decide the new coin composition.
Sen. Wayne Allard, R-Colo., is expected to present the Senate with a version more acceptable to the administration in the next few weeks.
Other coins still cost less than their face value. The dime costs a little over 4 cents to make. The quarter costs almost 10 cents. The dollar coin, meanwhile, costs about 16 cents to make, the Mint said. - Associated Press
Fed auctions another $75B to banks
The following appeared on page 2C of the Wednesday May 7, 2008 issue of the St. Paul Pioneer Press.
Battling to relieve stressed credit markets, the Federal Reserver said Tuesday it has provided a total of $435 billion in short-term loans to squeezed banks since December to help them overcome credit problems. The central bank announced the results of its most recent auction - $75 billion in short-term loans - the 11th such auction since the program started in December.
It's part of an ongoing effort by the Fed to help ease the credit crunch, which erupted last August, intensified in December and January and took another turn for the worst in March. The housing, credit and financial crises have weakened the economy and threaten to push it into recession. In the latest auction, commercial banks paid an interest rate of 2.220 percent for the loans.
Battling to relieve stressed credit markets, the Federal Reserver said Tuesday it has provided a total of $435 billion in short-term loans to squeezed banks since December to help them overcome credit problems. The central bank announced the results of its most recent auction - $75 billion in short-term loans - the 11th such auction since the program started in December.
It's part of an ongoing effort by the Fed to help ease the credit crunch, which erupted last August, intensified in December and January and took another turn for the worst in March. The housing, credit and financial crises have weakened the economy and threaten to push it into recession. In the latest auction, commercial banks paid an interest rate of 2.220 percent for the loans.
Farmland prices may be bubble waiting to burst, group warns
The following appeared on page 3C of the St. Paul Pioneer Press Wednesday May 7, 2008 edition.
By Tom Webb
twebb@pioneerpress.com
Farmland prices are booming across the Midwest, fueled by higher crop prices and speculative bidding.
Now, a Minnesota policy group warns that farmland fever has entered a bubble phase, and urges lawmakers, growers and rural lenders to confront it now, before the party ends and the fallout destroys a new generation of farmers and rural business.
"Minnesota agriculture is riding high - perhaps too high to be sustainable," Minnesota 2020 said in a report released Tuesday.
Prime Minnesota cropland that once grew gasps at $4,000 an acre is now fetching $5,000, even $6,000 an acre. In North Dakota, one survey found that farmland prices rose 46 percent last year, bid up not only by farmers, but also hunters, retirees and speculators.
Matt Entenza and Roger Moe, two former DFL legislative leaders, both have memories of how a similar boom in the 1970s fueled the disastrous farm crisis of the 1980s. Back then, "a lot of farmers took on a lot of debt because they thought prices wouldn't go down," Entenza said. When prices collapsed, it proved ruinous for rural Minnesota.
Now, the liberal-oriented 2020 policy group worries that history is repeating itself. Entenza urged farmers to understand that "debt is their enemy," and use these good times of high crop prices and land values to pay down debt, not borrow lots more.
"Folks said the Internet boom wouldn't end, folks said the housing boom wouldn't end," Entenza said, later warning, "These (farm) prices will burst, and if they (farmers) end up with a lot of debt, they will go down."
The group is asking state government to fully fund a University of Minnesota debt-management program that was helpful in the 1980s. And it wants policymakers to re-examine old policies and programs that once proved useful at keeping rural businesses alive, farmers on the land and communities thriving.
Meanwhile, corn prices continued to soar, moving sharply higher Tuesday on worries about planting delays.
By Tom Webb
twebb@pioneerpress.com
Farmland prices are booming across the Midwest, fueled by higher crop prices and speculative bidding.
Now, a Minnesota policy group warns that farmland fever has entered a bubble phase, and urges lawmakers, growers and rural lenders to confront it now, before the party ends and the fallout destroys a new generation of farmers and rural business.
"Minnesota agriculture is riding high - perhaps too high to be sustainable," Minnesota 2020 said in a report released Tuesday.
Prime Minnesota cropland that once grew gasps at $4,000 an acre is now fetching $5,000, even $6,000 an acre. In North Dakota, one survey found that farmland prices rose 46 percent last year, bid up not only by farmers, but also hunters, retirees and speculators.
Matt Entenza and Roger Moe, two former DFL legislative leaders, both have memories of how a similar boom in the 1970s fueled the disastrous farm crisis of the 1980s. Back then, "a lot of farmers took on a lot of debt because they thought prices wouldn't go down," Entenza said. When prices collapsed, it proved ruinous for rural Minnesota.
Now, the liberal-oriented 2020 policy group worries that history is repeating itself. Entenza urged farmers to understand that "debt is their enemy," and use these good times of high crop prices and land values to pay down debt, not borrow lots more.
"Folks said the Internet boom wouldn't end, folks said the housing boom wouldn't end," Entenza said, later warning, "These (farm) prices will burst, and if they (farmers) end up with a lot of debt, they will go down."
The group is asking state government to fully fund a University of Minnesota debt-management program that was helpful in the 1980s. And it wants policymakers to re-examine old policies and programs that once proved useful at keeping rural businesses alive, farmers on the land and communities thriving.
Meanwhile, corn prices continued to soar, moving sharply higher Tuesday on worries about planting delays.
Tuesday, May 6, 2008
Fed says banks are tightening credit
The following appeared on page 2C of the Tuesday May 6, 2008 issue of the St. Paul Pioneer Press.
The Federal Reserve reported Monday that more banks are tightening lending standards on home mortgages, other types of consumer loans and business loans in response to a spreading credit crisis. The Fed said the percentage of banks reporting tighter lending standards was near historic highs for nearly all loan categories.
The survey, conducted in April, found that nearly two-thirds of banks surveyed had tightened lending standards on traditional home mortgages with 15 percent saying those standards had been tightened considerably. But the survey found that the tougher lending standards extend far beyond home mortgages to other types of consumer debt such as credit cards and home equity lines of credit.
[My comments: Considering the last post, why doesn't the Fed just open up it's discount window to consumers and help the mortgage industry out. Why does CONGRESS have to do everything. Oh wait, they don't want to take the risk that other banks have. Yes, let the taxpayer bail everyone out so we don't have to seems to be the prevailing wisdom on Wall Street and in Washington. Shame! Shame!]
The Federal Reserve reported Monday that more banks are tightening lending standards on home mortgages, other types of consumer loans and business loans in response to a spreading credit crisis. The Fed said the percentage of banks reporting tighter lending standards was near historic highs for nearly all loan categories.
The survey, conducted in April, found that nearly two-thirds of banks surveyed had tightened lending standards on traditional home mortgages with 15 percent saying those standards had been tightened considerably. But the survey found that the tougher lending standards extend far beyond home mortgages to other types of consumer debt such as credit cards and home equity lines of credit.
[My comments: Considering the last post, why doesn't the Fed just open up it's discount window to consumers and help the mortgage industry out. Why does CONGRESS have to do everything. Oh wait, they don't want to take the risk that other banks have. Yes, let the taxpayer bail everyone out so we don't have to seems to be the prevailing wisdom on Wall Street and in Washington. Shame! Shame!]
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