- Written by Paul
Until we get unemployment under control, the bad economy is here to stay. Without jobs, there is no consumer spending. Even those remaining folks with jobs are holding onto what they have in anticipation of further layoffs. The flow of money stagnates.
With so many unemployed, there are less cars on the road. People are not renewing their auto insurance, since they don't have a paying job to commute to, and cannot afford the expense. In fact, in some rural areas there are folks driving without insurance, so be sure you have coverage for collision with uninsured motorists. The decline in auto insurance premiums has triggered the insurance industry to jack up the premiums for the rest of us, to cover increased costs. In this area, we have seen increases by about 5% so far this year.
Credit card debt is reaching an all-time high, as many out of work people are trying to make ends meet on unemployment insurance and using credit cards to make up the difference. Before the economic crisis, many were living beyond their means, never believing the train ride would end. Now that the good paying job is gone, many find they have debt-to-income ratios well over 100%.
In housing, banks refuse to renew loans or require additional collateral on existing loans, sometimes even when the borrower still has a job. With house prices continuing to fall, home equity is evaporating, leaving owners without enough equity to cover the loans. Homeowners who can't renew their loans are forced to sell at firesale prices, or face losing it all to the bank. It is especially hard for homeowners who have lost their jobs. Losing your biggest investment during this time is perhaps the biggest kick in the teeth. The irritating thing is that most of the banks received financial stimulus packages intended to trickle down and help homeowners, but few homeowners have seen any benefits.
Not only are more houses coming on the market due to bank foreclosures, but new home buyers are now facing higher entry requirements to get the loans they need to buy. Demand for homes has droped sharply, and new home manufacturers have cut production, laying off more people. The vicious cycle is still spiraling downwards a year after the collapse.
Many small business owners are stepping up layoffs even as the economy allegedly shows some signs of improving. They don't see an improvement, and are acting the best way they know to control costs and keep their businesses alive. Unfortunately, losing more jobs pushes the recession deeper.
The signs of recovery touted by various governments are mostly smoke and mirrors, caused by governments spending of money not backed by assets. If the average consumer writes a check without money in the account, that is fraud and punishable by jail time. If a government does it, there is no recrimination. There are consequences on the economy, which are yet to affect us all.