Richard Benson is president of Specialty Finance Group, LLC , offering diversified investment banking services.
The
government rebates are coming: Quick, hide from the bill collectors!
Creditors and debt collectors alike can smell the money a mile away, and
they’re mighty hungry. Some debt collectors resemble sharks who want to take
a big bite, while others are like mosquitoes who quietly feast. But many more
are like leeches attaching to prey until they’re full,
and their victims have been sucked dry.
There is a
mountain of consumer debt out there, and debt collectors are hoping for a big
chunk, if not all, of that little rebate check. But it’s not just the
collection agencies that want my rebate. My wallet was pick-pocketed at the gas
station on the way to the supermarket, where I was seriously mugged at the
checkout counter. I noticed the grocery store was running its famous "one for
the price of two” sale as I raced around looking for a bag of rice, only to
discover I was too late because the Asian peasants beat me to it. So I decided
to invest my rebate money into cans of tuna, instead. (I figured that with
the oceans getting fished out, and the price of tin and steel up 100 percent, I
had two ways to win on that one.) As I was leaving the store, it dawned on
me that the cost of living really is going up, and many of my
neighbors are struggling.
For the 30
percent of families that are in tough shape, they may be better off not
answering the phone at all. As we dodge creditor sharks, use mosquito repellant
to swat the annoying pests, and pull blood sucking debt collection leeches off
our backs, a record 28 million of us will continue to survive on food stamps!
But with an inexpensive labor force (particularly in India) coupled with
automatic dialers, collectors on commission will be making as many calls as
possible this summer to keep our phones ringing at all hours of the day.
While some
debt collectors may get lucky picking pockets for rebates, don't expect the
rebates to boost economic growth anytime soon. The $110 billion in rebates are
likely to be split equally between debt repayment, savings, and spending.
Consumers currently owe about $11 trillion in mortgage debt, and $2.5 trillion
in consumer debt (credit card delinquencies and defaults are pushing eight
percent). Throwing $40 billion into the debt repayment pot is small by
comparison. For economic spending, $40 billion in a $14 Trillion economy is
just a statistical "rounding error." The net effect is something like pouring a
glass of water on the hot desert sand and before you can blink, it’s gone.
Maybe the wise thing to do will be to use the rebate to file for bankruptcy!
For every
check issued, there are 10 or more people holding their hand out for it. This
year you will get butchered at the butcher shop because of the price of beef,
and burned at the bakery. Grain is so expensive, even the French middle class
can't afford a baguette any more. For the average American, this rebate check
represents only one car, credit card, or partial mortgage payment. When you
consider it cost well over $60 now to fill up the gas tank for a mid-sized car,
and a lot more to go out to eat, it won’t go very far.
On the
household front, millions of homeowners haven't even finished paying their
heating bills from last winter, and over six million Americans asked for energy
assistance funds so their power wouldn't be shut off. (In California alone, 1.7
million households are behind on their utility payments.)
Signs of the
stretched consumer include the following stunning facts:
- Home
equity loans have a seven percent delinquency;
- Subprime mortgages, past due over 60 days, are pushing 14 percent;
- Over
one million homes are in foreclosure and three million more are empty, and up for sale;
- Ten
million homes have mortgage balances greater than their value. (No wonder some homeowners are walking away from them);
- In
the auto market, 25 percent of all car loans are higher than the car is
worth. (The average balance these cars are underwater for is $4,300!)
Jobs are also
falling off a cliff. If it hadn't been for the Birth Death computer model at
the BLS creating service jobs out of thin air, the payroll data would have shown
over 280,000 people actually lost their jobs in April. Currently, 2.7 million
workers have exhausted their unemployment benefits, and with no job prospects or
income, hello collector!
I should take
comfort that with a big election coming in November, incumbent politicians want
to buy my vote for $600, and pay for my vote with my money! However, it seems
to me that in order to keep up with the rising cost of living and debt service,
we’ll need an extra $600 every month for many months. Perhaps
Americans are rich enough to pay themselves the trillion dollars or more we need
to keep spending.
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