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Thank you for the informative post Ben. Let's all please refrain
from expressing *any* political or socially political comments about what
the post says and limit comments to the points made re the impact on
consumer spending, banks, the economy and the markets.
Thanks,
Bob
At 12:08 PM 9/1/2005 -0400, you wrote:
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.
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