Part 2: Yesterday, I covered the
Dow Jones Industrials and the sizeable drop that it could see within the
next
6 to 9 months. In today's commentary below, I address an important event
that dramatically increases the odds of such an occurrence unless Congress and
our politicians change things soon.
2005 ... The year of
the Black Christmas?
Millions
of Americans are going to have a huge surprise before Christmas ... a big enough
surprise to have them make a huge cut back in Christmas spending.
The
event will surprise you ... it is the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005.
If your first thought
is that it will not apply to you, and only to those who are involved in
bankruptcy
conditions ... think again.
The
new law has hidden provisions that will effect every American with a
credit card who has been making the minimum payment amount in the past. This
provision, by law, will have the banks change the minimum current payment of 2%
of the balance to 4% ... changing the pay off period from 20 years to 10 years.
When consumers get their 100% increase required minimum payment in
November’s statement, available discretionary income
will be sucked out of retail purchases and into the banks.
If I had to estimate it, this new change in minimum
required payments will drain a minimum of 2.4 Billion Dollars of Christmas
shopping purchases (November and December payments) and a reduction of
discretionary income of 14+ Billion per year not taking into account increases
in interest rates being charged. This is based on 2002 total outstanding
U.S. credit card debt statistics. Now, 3 years later, it has to be significantly
more. The effect on retail store profits, the stock market and the economy will
be a very negative event.
Information about Americans with Credit Cards
...
Currently, 92% of Americans carry 5 to 6 credit cards in
their wallets, and 55% have 7 to 8 cards in their wallet.
About 20% of
credit card users are “maxed out” and cannot charge more. These consumers, with
no money will be forced to make double payments. This has to be some new form of
banking insanity, as this will certainly force many of these consumers into
bankruptcy ... but only after October 17th. when the new bankruptcy law doesn’t
allow them to erase the charge card debt ... and requires them to pay it off
during their lifetime. This will have a long term negative effect on the
economy.
For banks, it requires them to keep the amounts due on the books
because technically it has to be paid, as guaranteed to the banks by the new
law. This will create fictitious balance sheets for banks that make assets look
wonderful when the likelihood of them actually receiving the payments are small.
Currently, the average credit card debt per person is estimated at
$8,652. A minimum 2% payment used to be $173.04 ... the new minimum payment will
be $346.08. This happens just in time to create a Black Christmas for retailers.
This is the average debt, so who have $20,000 in credit card debt will go from
$400 to $800 per month. (Total U.S. minimum monthly payments as an aggregate
amount would increase 1.2+ Billion/month.)
I spoke to one subscriber who
told me, its okay for everyone in my State of Massachusetts because all our
homes are protected under the Homestead Act for $500,000 of assets.
Wrong
again ... Last April 21st. The new law quietly changed that. Homestead exemptions are now capped at $125,000, regardless of
what the law of your state is, unless you've resided in that state for at least
40 months.
What about someone’s car if they
might be filing for Bankruptcy after October 17th.? The new Chapter 13 law requires one to pay the full loan amount
... not the current value of the car if you want to keep the car. This will apply to loans less than two and a half years old as of
the date of filing. Similar new rules apply to
any other property classified purchases within the last year prior to filing.
Some folks I have talked to said, "that
anyone filing bankruptcy is a bum and deserves everything they get!".
But, here are the facts ...
Most filing bankruptcy are not trying to cheat the system.
The average person filing earns a little over $22,000 per year and the majority
had a long period of unemployment before filing for bankruptcy. Consumer's Union
reported that 85% of the elderly had medical or employment reasons for the
bankruptcy. Single, divorced mothers with children struggling to survive make up
a large percentage of bankruptcies.
What ever happened to our “Kinder, Gentler Nation”?
Whatever happened to empathy and helping those who are truly in need. We
spend Billions of dollars in government give aways to other countries and
neglect our own people at home. This is indeed a sad loss of compassion
for this country.
_________________________________________________________________________________