Debit versus Credit

Breaking News: Recession Since Dec 2007

It’s a shame that sarcasm is so difficult to convey over the web.

Most of you have likely heard by now that it’s official: the U.S. has been in a recession since last December. My question now is, does this surprise anyone out there? I’ll admit that I’m actually a little surprised it’s already been a year. It does make sense though, especially when looking at consumer spending last Holiday season. It didn’t increase by much.

Looking at a history of past recessions (since WW2) it’s interesting to note that the majority of them lasted no longer than a year. It’d be nieve of me to believe that because they didn’t often last longer than a year in the past that this one is just about over now, but it is an interesting statistic nonetheless.

Many economists believe that this recession could end sometime in the second quarter of 2009, which could potentially make it the longest economic downturn since the Great Depression. What’s interesting about that is this would make some of the doomsday-callers partially correct in their prediction that this would lead to another Great Depression. Obviously it hasn’t turned into that at this point, and hopefully it won’t, but they would be right at the very least in the length of time of this downturn.

Just some interesting information. Any thoughts?

December 2, 2008
Common Identity Theft Scams And How To Avoid Them

Yesterday in the post Identity Theft is No Laughing Matter I shared some basic information with you about identity theft. Today I’d like to take this one step further and educate you on some specific scams used to obtain your personal information. My hope is that by educating you on these scams you’ll be less likely to become a victim.

The Jury Duty Scam

You’re sitting at home enjoying your Thanksgiving dinner when the phone rings. You answer it and the person on the other end of the line is claiming to be a court worker and is telling you that you failed to report for jury duty and a warrant has been issued for your arrest. Naturally you’re skeptical and you tell the person on the other line that you never received a jury duty notification. The scammer then asks for confidential information in order to verify that you are who you say you are (how ironic is this?). This information usually includes your social security number, your birthdate and can often include credit card numbers as well, which is exactly what a criminal needs in order to commit identity theft.

Phishing

According to the dictionary, Phishing is “the activity of defrauding an online account holder of financial information by posing as a legitimate company.” Phishing is widely used to try to gain account information for banks and other financial institutions. I personally get phishing e-mails from banks that I’ve never even held an account at. A great rule of thumb to avoid being phished is that a legitimate company will NEVER ask you to verify your account information through an e-mail (and likewise over the phone).

If It Sounds Too Good To Be True… It Is

There’s a simple rule to remember when it comes to protecting your identity and, by extension, your financial well-being. If it sounds too good to be true then it definitely is. No legitimate company will send you an e-mail asking for you to verify your identity. No entrepreneur in Nigeria wants to send you money.

Let’s wrap this up with a few links to some documented scams: e-mail scammers, Gmail phishing attempt, PayPal phishing guide.

This post was written in response to the Spend on Life Credit Blogging Scholarship. If you’re a student with a blog and would like the chance to win a $2,000 dollar scholarship check out the Spend on Life Blogging Scholarship!

November 27, 2008
Identity Theft is No Laughing Matter
While watching The Office the other day I saw an episode where Jim, the office prankster, comes in dressed like Dwight, an annoying paper salesman. At first Dwight doesn’t realize that Jim is making fun of him, but after Jim starts to argue with Dwight about bears (Dwight’s favorite animal), he becomes enraged and shouts, “Identity theft is not a joke, Jim!”

While I hate to admit that Dwight may be right about something, he brings up an important point. Identity theft is not a joke – in fact it is a very serious problem that can have significant ramifications for those who have had their identities stolen.

What is identity theft?

Identity theft can be defined as a type of fraud where the criminal pretends to be someone other than himself with the intent of personal gain. One of the most common types of identity theft is financial identity theft, which is the act of using another’s identity to obtain goods and services.

A classic example of financial identity theft is bank fraud, where the criminal uses a fraudulently obtained social security number, address and other forms of identification to apply for a loan under the victim’s name. Once the criminal has received the proceeds from the loan he disappears, leaving behind a fraudulent loan on his victim’s credit and a serious headache.

Preventing identity theft

The easiest way to prevent identity theft is to never share your personal information with anyone that you don’t trust. While there have been many cases where personal information has been sold by a corporation’s disgruntled employee, most often criminals come into contact with sensitive materials through other means, such as:

Stealing mail

Retrieving information from old discarded computers

Pickpocketing

Hacking

Digging through rubbish bins

Identity theft is a growing problem in today’s increasingly electronic world. It’s important that you learn how to protect your identity so you don’t end up paying thousands of dollars out of your own pocket trying to restore your (once good) name. Now that you know a little bit more about identity theft it’s time to take a look at a few common identity theft scams.

This post was written in response to the Spend on Life Credit Blogging Scholarship. If you’re a student with a blog and would like the chance to win a $2,000 dollar scholarship check out the Spend on Life Blogging Scholarship!
November 26, 2008
Are You Still Actively Investing?

The market has been more than crazy over the past several months. It’s a bit depressing to look at all of the losses that I’ve had, at least on paper, but I know that eventually it’ll all come back. Nonetheless it’s definitely scary out there for a lot of people.

I’m interested to know how all of you are responding to the current market conditions. What are you doing with it being so crazy out there?

[poll id=”3″]

I’m still throwing just as much into my 401(k) but I’ve not done any individual investing in stocks or any mutual funds for about a month now. The reason for that is mostly because I’m saving cash for certain upcoming expenses. I’m definitely curious what you’re doing and I would love to hear your comments as well!

Good luck out there!

November 24, 2008
What The Hell Is Going On In Washington?

I’d really like to know what is going on in Washington. What runs through the minds of our so-called congressmen and congresswomen? Why is it that we’ll pony up $700 billion dollars with just the snap of a finger to help battle a crazy mortgage related mess but we’re too damn poor (or are we just too good?) to come to the aid of the “big three” (Ford, GM, Chrysler) with a measly $25 billion dollar loan?

Washington D.C. and Detroit have lost their minds

And on that note what the hell has been going through the minds of every executive at these three automakers over the past several decades? Why is it that they are on the brink of bankruptcy and constantly losing market share when most of their foreign competitors are raking in the American Consumers’ dollar?

Unfortunately the question about the executives at the “big three” is a fully loaded question. It’s also likely to get some passionate responses. On that note if you want to voice your opinion on the “big three” then leave your comments at the new personal finance discussion forums here at Debit versus Credit.

$700bn? Sure. $25bn? Nah.

Let’s travel back to Washington D.C. Today Paul Kanjorski, D-Pa. said he wasn’t so sure that they should be supporting a loan package to the U.S. Automakers. Check out what he had to say about this:

I am not yet convinced that we must act so rashly. The American public demands that we get this right.

He’s right about one thing. We do demand that they get this right. I’d like to know however if ANYONE out there actually believes they did get this right. I don’t want to be hypocritical and say that thing should have turned around by now when in fact I’ve been preaching that it will take time. I still believe that. It will take time. However if we go back before the $700bn bailout was even conceived, back to a time when the subprime mortgage fiasco had not even begun to take place then we can see where maybe Washington didn’t get it right.

Where were they when these totally bogus loans were being created, repackaged and sold? I demand answers on why they have done nothing right for as long as I’ve been old enough to have any idea what’s going on in the world. For that matter are they ever going to get it right? Well Washington?

There’s a lot more riding on this than they’re letting on

The fact of the matter is that Detroit shouldn’t be in this mess. If they were half the company that Toyota is then they would have nothing much to worry about. But they’re not. The fact is they need help and we are basically refusing help. Well Washington open your eyes, because there’s a lot more riding on this than some of you might realize. What happens if G.M. goes belly up? Somewhere around 145,000 people will lose their jobs directly, but millions more will be affected. There are around 7,400 G.M. dealerships that will likely close. There are suppliers, shipping companies, marketing firms, etc. It’s a much bigger problem than Washington seems to realize, or maybe they’re just not letting on what they know.

Honestly there’s no way to tell. All I know is that they’ve already put $700bn dollars on the line that no regular citizen will ever see any direct effects from… what’s another $25bn to do save some auto makers from bankruptcy (something that is tangible)?

What do you think?

November 20, 2008
What Everyone Who Has US Dollars Needs to Know About China

Today we’ll be featuring a guest post from Simit Patel, a contributing analyst at InformedTrades.com

As the recent economic turbulence has shown us, we live in a global economy. And thus, if you want to astutely manage your finances, you need to know about how global factors can affect your wealth.

And if you hold US dollars, there’s one factor that you should be particularly wary of: China.

The US government is currently running record levels of debt, and with government spending continuing to rise given the bailouts, entitlements, and foreign policies that have been promised, the debt will likely rise — especially when we remember that the tax base is diminishing due to rising unemployment. And right now, one of the biggest lenders to the United States is China. To put it in consumer terms, China is like the bank that gave the US a credit card to finance its expenditures.

Of course, how much longer China, as well as other buyers of US Treasury bonds, continue to buy US debt is increasingly becoming an issue — particularly as the global economy is contracting, thus making lenders more wary of lending. Accordingly, China and the rest of the world may not be buying US debt — just at the time when the US government is looking to increase its expenditures.

So the question: is the US on the verge of maxing out its credit card?

Well, one way the US government can attract more lenders is to raise its interest rates. Currently rates are moving in the opposite direction; the Federal Reserve, the organization that establishes the monetary policy of the US dollar, is moving interest rates to near zero in an attempt to encourage borrowing and spending as a means of stimulating the economy. However, if the US has trouble securing more debt, it may need to raise rates — i.e. the amount it is willing to pay for the privilege of borrowing — to attract the debt. This does, however, introduce greater problems down the road, as it will increase the overall debt burden on the
US government and its taxpayers.

Alternatively, if the US government is not able to secure more debt — if, to put it in consumer terms, it’s credit card is maxed out — it will need to print more money to pay off its debts. This will result in currency devaluation. Personally, this is the scenario I am more concerned about.

If more money is printed and the currency is devalued — meaning it will cost more to buy the same goods and services — how can you protect yourself? Well, just as we now need to monitor the global economy for signs of problems, we can look to the global economy for solutions as well. Foreign currencies and precious metals — particularly gold and silver — have historically served as ways to protect against currency devaluation. For individuals looking to preserve and grow their wealth, diversifying globally may be a path worth embarking upon.

Simit Patel is a currency trader and contributing analyst at InformedTrades.com, a site that offers free courses on trading the world’s financial markets.

November 19, 2008
Why Another Rate Cut Could Do More Harm Than Good

It’s clear that the root cause of the financial difficulties that we’re facing in the United States is not related to credit being too expensive. It’s quite the opposite in fact – credit is cheap right now but many banks are actually cutting back on lending. So what gives? Why are we sliding into a recession when the Fed has done just about everything that they could to avoid the “r” word?

To be honest with you I don’t truthfully understand everything that’s gone wrong to put our nation and the world in the situation that it’s in. It’s been a long and a drawn out process that some say has been 25 years in the making. Therefore it’d be near impossible for me to cover such a heavy topic on a blog.

Another Rate Cut May Be Near

Something did catch my eye while I was skimming the financial headlines that’s basically directly related to this current crisis and I want to talk about what I read and what I think about it. The Federal Reserve of the United States recently alluded to the fact that they may be making another rate cut in December.

What?

Didn’t we already establish that credit is not expensive? If you remember the last time the Fed cut rates to where they are at now I complained about the rate cut. I was a little annoyed, but to be honest now I’m upset. I think the central bank has forgotten some important details about the current crisis. They’ve forgotten that the American consumer has a great deal of influence in the state of the economy.

Let’s talk about this. I want to hear your opinions and I want your feedback, but more importantly I want to tell you why I think that another rate cut would be foolishness of foolishness.

Why Another Rate Cut Won’t Do Any Good

Another rate cut truly won’t have any affect on how willing financial instituations are going to be to lend money to one another. They aren’t likely to lower consumer loan rates. They will however have a near-immediate impact on consumer savings rates. You think your savings and cd rates suck now? Another rate cut will drop those even more.

It seems to me that these cuts are being made on a purely psychological basis. Almost as if they’re saying that they’re willing to do anything to get the economy back on track. That’s great and all, but is this really going to excite the average consumer? Are they going to see another rate cut and sigh a sigh of relief thinking that their money is going to be safe and we won’t go into a deep, dark recession? Not likely.

Uncertainty Leads to a Recession

The cause of just about any recession goes far beyond actual slowdowns in lending and consumer purchasing. It’s almost always intensified by uncertainty.

People are afraid right now. Truly afraid. If that’s the case then does it seem best to drop rates? I’m actually of the opinion that leaving rates the same could be more beneficial than a rate cut.

The news reports rate cuts nowadays as if they are some sort of super relief element used by the Fed to stop a recession dead in its tracks. Therefore the consumer thinks that a recession is a likely scenario. They stop spending and they start worrying. Suddenly we’re facing a recession. Why? Self fulfilling prophecy.

My Hypothesis on the New Psychology of Rate Cuts

I’m proposing then that a rate cut is more devastating (psychologically) to the average consumer in times of financial crisis than it would be to leave rates the same. By cutting rates the Fed is signaling that they’re afraid and they don’t know what’s going to happen. Let’s leave rates alone for once and see what happens.

You never know.

November 17, 2008