California Pushed to Issue IOUs

June 30, 2009
California Pushed to Issue IOUs
Economic News and Information for Consumers

California is facing a budget deficit of $24 billion.  With the fiscal year ending tomorrow and no budget in place, California will be forced to issue IOUs to many of its contractors including those in IT and even food vendors that support the prisons.  It’s a cash shortfall mess to say the least with this being the worst deficit since the Great Depression.

The Governor said he will veto any budget that crosses his desk that raises taxes without reforming the state’s governement.  But is this possible?

In California, taxes seem to be the only way to go.  However, a problem that many aren’t considering is how much tax they can collect during this economic downturn.  To tax the residents, they have to have the means to pay.  The reality is today that most people don’t.  They’ve lost their jobs or are barely making it with much reduced wages.  The only true way out is for California to massively cut its spending and programs that are not needed.  It needs to happen soon, or the IOU’s won’t be worth they paper they’re written on.

Adding to the financial woes in California is the housing market that continues to decline, eroding value for current homeowners and forcing many out altogether.

With rates edging higher, moratoriums holding strong and foreclosures continuing, California has a very long way to go to get back to being the wealthiest state in the union.

Inflation > The effect it will have on You

June 29, 2009
Inflation > The effect it will have on You
Economic News and Information for Consumers

It’s hard to pin down exactly how much the government has thrown out over the last year in terms of spending. It all depends on when you start counting, regardless, the amounts are so significant that the thought of inflation has entered the mind of every responsible economist.  It IS going to happen, how could it not.

If we go back to the years of the Carter administration, think about interest rates then.  Can you imagine having a mortgage rate that high today?  Rates have already begun to rise, which has hammered the somewhat recovering housing market.  If rates go even higher, which they will, we can all plan on many more foreclosures and further losses in equity to current home owners.

Inflation essentially degrades the value of the dollar, it takes more money to buy things.  You’ll see gas, retail items, homes etc. all go up in price quite rapidly.

What’s the cure for really bad inflation?  A good old fashioned recession just like the one we’re in today but if we have another one to cure hyper-inflation we could all be in very big trouble.  Many economists have warned of this “double dip” recession for months and it looks like we’re on our way.

If you’re in the market to buy a home, this could be the prime opportunity.  One thing you need to take advantage of now is the interest rates that are still low by historical standards.  Furthermore there’s a nice government tax incentive to buy before the end of the year if you’re a first time home buyer.

There are still some bright spots to the economy but they are few and far between.  Take good care of your money, invest wisely and buy a home now if you’re in the market to do so.

Southern California Housing Stalls

June 25, 2009
Southern California Housing Stalls
Economic News and Information for Consumers

Foreclosures are higher than ever, evictions have been occurring at an alarming rate and yet there are still barely any homes on the market.  Those that are on the market have sat at the same price for months with little or no price reduction.

The original problem we had with inventory was a moratorium that was put in place around November.  The goals were to keep homeowners in their homes during the holidays and to stop the foreclosure process to create an opportunity to refinance or do a loan modification.

Refinancing didn’t happen, over 60% of loan modifications failed within the first year.  The program was determined to be a failure so the moratoriums were finally lifted in March.

April and May went by quickly with no sign of this inventory being released.  It was reported that approximately 70% had been held back and many more were on the way.  Many in the industry, those in control of the inventory, leaked to agents that inventory would come out in waves starting at the beginning of June.  Realtors lined up with the hopes that their income would come back up but to their dismay, it did not.

The market still sits at a standstill.  To make matters worse, rates have risen to much higher levels than needed to really spark any interest in home buying.  We saw rates reach as low as 4.5% but now they have drifted closer to 6%, which results in about 10% less buying power.

What is the cause of the continued housing stall?  No one really knows but it likely goes back to government intervention and control over what the banks are doing.  Consider this, bank balance sheets are hurting. They need to remove these assets soon to survive so the only reason they would hold on to deteriorating assets would be due to intervention.

If you’ve been looking for a house in Southern California, you probably are aware of what’s going on.  Until inventory is released and cash flows, the recession will remain.

Nationalized Health Care, Where do you stand?

June 24, 2009
Nationalized Health Care, Where do you stand?
Economic News and Information for Consumers

If you’ve read any of the news over the last 3 months you know there is a huge push for nationalized health care.  The goal is to bring affordable health care to millions that are currently uninsured but there are problems with the plan in getting it passed.

First, the program needs to be paid for, which can only come from one place, taxpayer dollars.  The bill for this program is enormous but Obama is pressing forward anyway.

Second, some democrats and most republicans are against the spending that is tied to the program so it’s possible that it will not pass at all.

But beyond these two problems there is the core issue of being able to select your own provider versus what the government feels is necessary for you.  If the government controls health care, they can dictate prescriptions, treatments, surgery and more.  Now some systems work in a similar fashion like Kaiser Health Care of California.

Kaiser has been the top-rated health care program in California for many years because people are happy with it.  Everything is done in-house, from your procedures to your prescriptions.  It works for many people. On the other hand, imagine being diagnosed with a disease like cancer and being forced to visit one doctor or center over another.  Wouldn’t you want the option to visit the best possible center in the country for your health?

Furthermore, treatments can be reduced or you may be stuck with one type of surgery (open) over one that creates less trauma and blood loss (robotic).

Nationalizing seems like a program that could work if benefits are plentiful and people have good choices but what happens if this breaks down, people are limited in their treatments and they start getting sick or losing their lives?  Therein lies the debate on this issue.  What do you think?  Sound off below:

$4500 Cash For Clunkers and $8000 to Buy New Home

June 22, 2009
$4500 Cash For Clunkers and $8000 to Buy New Home
Economic News and Information for Consumers

Not everyone is happy about the cash for clunkers program but most are, particularly those in the auto industry.

The government has tried just about every way possible to light a fire under the auto industry but not much of it has worked.  Initially it was believed that easing credit markets would bring buyers but the reality is that people were losing their jobs so access to credit didn’t matter at all.

Now the new cash for clunkers program is about ready to pass.  Don’t be misled by the term “clunkers” either because cars over 25 years old aren’t eligible.  Most of those who take advantage of this program will likely turn in vehicles that are less than 10 years old.  The hitch?  Your vehicle must do less than 18 mpg combined highway and local driving.  To get the maximum benefit of $4500, you’ll need to buy a vehicle that gets 10 mpg better than what you’re turning in, but there are some variations to the discount.  Your best option is to check with your local dealer when the incentive is passed.

Not everyone is pleased with this proposal though.  Some believe that it only helps the rich get richer because most people can’t afford a new car even with the maximum $4500 rebate.  What could happen is the richer community will turn in their 5 year old Tahoes for the newer hybrid version and take the smaller rebate.  Only time will tell.

In the housing market we’ve see some serious ups and downs with the rates.  The historically low 4.5% rates have gone away and been replaced by rates in the low 5’s, any higher and the “recovery” will be doomed for sure as it will stop refinances and new home purchases.

One light of hope is the $8000 tax credit that continues for new home buyers.  This means you have not owned a home within the last 3 years.  Some states are also offering tax incentives but beware that many of them are running out of funds fast and will likely not last through the end of the year as hoped.

When Will Mortgage Rates Drop Again?

June 17, 2009
When Will Mortgage Rates Drop Again?
Economic News and Information for Consumers

Mortgage rates have been big news for over a year now because they can be the primary catalyst for bringing this recession to an end.

Many efforts have been made to keep mortgage rates as low as possible, primarily the purchase of treasury securities.  These purchases affect the 10 year bond rate, which is directly tied to mortgage rates.  For a period of about 3-4 months we saw rates hovering around 4.5%.  During this same time, select members of Congress provided suggestions to getting rates even lower, down to 4% but these never came to fruition.

We thought rates would stay low but they didn’t.  In recent weeks we’ve seen rates jump back to around 6%, which is not a bad rate but during a difficult recession, it reduces buying power and eliminates those who wanted to refinance.

The recent jump in rates has slowed down any possible recovery but it’s also killing the real estate market where prices are already down 30% nationwide and 50% in some hard hit areas like California, Nevada and Florida.  The result will be continued downward pressure on housing prices.  This hurts the balance sheets of banks but it also eats away at any remaining equity homeowners still have.

In recent days we’ve seen interest rates retreat a bit, where they are back down to about 5.25% for FHA guaranteed loans but this still results in about 10% less buying power when compared to a rate of 4.5%.

If rates stay high, prices will need to adjust accordingly, which may happen anyway as foreclosures tied up in moratoriums are finally being released.  Inventory should be at its highest this Summer so if you’re looking for a home, keep your eye on the rates and watch as inventory increases.

Your Employer-Owned Cell Phone Tax

June 16, 2009
Your Employer-Owned Cell Phone Tax
Economic News and Information for Consumers

The IRS has rarely been on the side of taxpayers, but now there is discussion of repealing the burdensome and outdated cell-phone tax.

The cell phone tax effectively taxes users of cell phones that were provided by businesses, but the only calls taxed are those for personal use.  The reason for the tax is that businesses were taking write-offs that were too large, they bundled personal use calls with business use calls.

But this law was enacted twenty years ago when not many people had cell phones.  Anyone who did have a cell phone was considered to have acquired a major perk equivalent to having a company car.  Today, everyone has a cell phone including school age kids.  The law is outdated and needs to be eliminated.

But the problem with the IRS and Congress is that getting anything done takes too long.  There are bills sitting that were created to eliminate this tax plus the Obama administration has requested specifically to Congress to have the law eliminated.

In the meantime, some taxpayers are stating that the IRS is doing exactly the opposite of what they claim and actually enforcing the law now more than ever.

No one really knows what the IRS is doing but we do know that the Obama administration has opened up significant funding for the IRS to perform more enforcement of collections.

How do you feel about the cell phone tax, IRS enforcement and the IRS in general?  Sound off below:

Robo Auto Warranty Call Founders Jailed > Finally

June 15, 2007
Robo Auto Warranty Call Founders Jailed > Finally
Economic News and Information for Consumers

Robo auto warranty calls have got to be the most irritating of all time.  I have received dozens of these calls on all 3 of my phone lines including two cell phones.

Here’s how it works.  Robo calls work off of an automated system where there is no rhyme or reason to the numbers selected.  In fact, apparently the robo callers even called 911operators.  When you receive one of these calls, it will warn you that your warranty is about to expire and that you need to press 1 to extend the warranty or you could be open to large repair costs.

The robo caller has no idea if you actually have a warranty, let alone one that is about to expire.  Instead of filtering who would actually be a reliable client, the system has randomly called over a billion numbers, quantity not quality.

The result for these criminals has been over $10,000,000 in sales.  Fortunately they won’t see any of it as they’re currently being prosecuted.  Their names are:

• Christopher D. Cowart, 47, of Fort Lauderdale, Fla
• James A. Dunne, 36, of Daytona Beach, Fla.
• Maureen E. Dunne
• Damian P. Kohlfeld, 35, of Valparaiso, Ind.

California Home Buyer Tax Credits Running Out Fast

June 12, 2009
California Home Buyer Tax Credits Running Out Fast
Economic News and Information for Consumers

Have you heard of the Obama and California home-buyer tax credits?  They’re a fantastic incentive to buy but they could be running out fast.

Presumably the tax credit put forth by the Obama administration won’t run out because the Fed can always print more money but that doesn’t mean it won’t be axed somewhere along the line particularly given the new “paygo” program implemented earlier this week.

“Paygo” as they call it was designed to only spend money when money comes available.  Money becomes freed up and ready for use from 2 different sources, an increase in taxes or a cut in spending.  It’s the spending cuts that could easily derail a program like the first-time home-buyer.  Don’t be surprised if it goes away.  Remember you have until the end of the year before this one expires anyway.

California, on the other hand, is in very deep trouble financially.  Plus, the state can’t print its own money as the Governor pointed out to us several weeks ago.  Programs are being cut fast!

One of these programs is the first time home-buyer incentive where buyers receive a $10,000 tax credit much like the $8000 credit offered by Obama.  However, this program has a limitation and it’s one that has never been mentioned in the media.

There was only $100 million set aside for the incentive.  We’re only 5 months into the year and there is only 17% of the fund left.  Basically this fund will be out before we know it, which could stall a housing recovery in California.

To make matters worse, interest rates have steadily climbed from their low of about 4.5% just over a month ago.  The increase in rate effectively reduces the buying power by 10%.

If you’re a first time home-buyer and you’ve been preparing to buy and take advantage of federal and state tax credits, do it soon.  The absolute latest you can buy to be eligible is the end of the year but funds will undoubtedly run out before then.

Americans Lose $1.33 Trillion In Net Worth

June 11, 2009
Americans Lose $1.33 Trillion In Net Worth
Economic News and Information For Consumers

The recession had done some serious damage to Americans’ net worth, primarily stock portfolios and equity in homes.  This drop is for the first three months of 2009 only.

Stocks have been getting hit now for months.  The DOW, once at a high over 14,000 has been climbing slowly to reach its current level of 8800, we have a long way to go.  Basically, many people that had money invested in stocks saw it cut in about half while other stocks have gone under completely.  The recent rally is due in part to the rising cost of oil, which will likely push gas prices over $4/gallon once again for Summer. This buy-up is extremely pre-mature and could impact any economic recovery.

Housing prices are down 30%+ nationwide, 50% in some very hard hit areas like Las Vegas and sections of California.  There are many more people affected by this decline than that of the stock market, meaning a loss of stocks can be dealt with but losing your home to foreclosure can be far more difficult.

Those homeowners that have been able to keep their homes have lost a significant amount of equity with the majority of homeowners under water.

When will this end?

The Obama administration has said that the recession will end this year but what that really means is that we’ll have growth in Gross Domestic Product (GDP).  It does not mean that unemployment will suddenly decrease.  In fact, we’re looking at continued unemployment through part of next year likely to reach over 10% very soon.

An increase in net worth will continue to be a function of stock values (though many have jumped ship on their stocks), and home values.  The stock market recovers more quickly and goes up and down based on economic and other news while housing prices will take years to recover.  In fact, we’re looking at about 2012 for all of the bad loans to worth their way through the system.

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