Are we headed for deflationary depression instead of hyperinflation?

At least one analyst thinks so.  According to financial advisor and author Dan Shaffer America and the rest of the world are currently at the beginning of a deflationary depression period.  He believes that we are presently seeing the beginning of this depression and it will last for many years to come.  Presumably overall prices will fall dramatically in this period according to Shaffer’s prediction.

He says that governments have borrowed huge amounts of money and this has driven up public debt dramatically.  We have had TARP and the stimulus package to name a few of these public spending programs but none of them have stimulated the economy.

We still have high unemployment and no sign of a real recovery.  According to an article posted online recently in Yahoo Finance the economy is sputtering.  Unemployment rose in May officially from 8.1% to 8.2%.  Far fewer jobs were created than were anticipated according to the article.

Shaffer points out that Chinese manufacturing is stalling and there is the European economic crisis.  Several countries in Europe have massive debt problems with Greece at the forefront but Spain, Italy and others are all in trouble too.  Manufacturing in Britain is shrinking at a fast pace and even France and Germany are showing a slowdown in the manufacturing sector according to the Yahoo Finance article.

Shaffer seems to indicate that all of this government spending has only served to pump more air into a series of bubbles.  We have already seen the housing bubble burst but their are others that are ready to burst he says.  There is the manufacturing bubble and the student loan bubble not to mention the overall consumer debt bubble.   He indicates that all of these bubbles must eventually burst when the air (government spending) is withdrawn as it inevitably must be.

In America the Fed has responded to this overall economic crisis by dropping interest rates to historic lows.  Interest rates are now lower than what they were even in the great depression and they are at the lowest level in history according to Dan Shaffer.  According to the Yahoo Finance article the Fed has bought $2.3 in bonds to help the recovery.  The Fed has also signaled that it will keep these interest rates low until late 2014 at least.

In the article they state that there is little more that the Fed can do as it has dropped interest rates as low as they can for the foreseeable future and it seems to have little effect.  The federal government too is in trouble too as it has borrowed and spent with TARP and the stimulus package around $2 trillion and this has not created growth in the economy.

So now the government is out of options.  They have borrowed, spent, and the fed has lowered the interest rate to zero.  What else can the government do?  We now have a $16 trillion public debt to show for these borrowing and spending policies and little economic recovery.  The spending has indeed left us with nothing but record large government debts.

I hear echoes of history here where FDR’s treasury secretary Henry Morgenthau, Jr. said “we have tried spending money.  We have spent more than we have ever spent before and it does not work”.  He was speaking here of FDR’s new deal which he was a primary architect of.  The new deal policy was to borrow and spend money endlessly in an attempt to stimulate the economy but at the end of 8 years the unemployment rate was just as high as it was when FDR’s administration began spending money.

Today we have done almost exactly what was done in the 1930s with similar results.  You think we would learn from history that this massive borrowing and then spending does not lead to recovery but just to massive debt.  Now with the heavy debt load and the lack of recovery the American public naturally wants to put a brake on the spending.

A public demand has been building for the last few years that government spending be curtailed.  We have seen this with groups like the Tea Party and others that have demanded an end to this spending and a reduction of deficits.  Whether you agree with these groups or not their demand have reached the ears of Congress.

This is where Shaffer seems to believe that we will get into trouble.  He claimed recently on Fox business that this government spending does eventually find its way into the private sector.  When government spending is lowered in the near future he says this will result in less buying power for world markets.  This could result in deflationary pressures throughout the world as the bubbles burst.  Prices could then dramatically decline instead of increase.

He seemed to say that government spending has propped up the stock market although temporarily.  Now that the times have changed and people want to put the brakes on borrowing and spending this removal of the government money will result in severe economic problems because of a collapsing of prices.

The government has also tried printing money with QE1 and QE2 and there are calls to do a QE3.  I argued in a previous blog that this will only lead to massive inflation and that could lead to disaster.  This is what lead Germany to Hitler through the massive money printing and inflation of the Weimar republic.  The National Socialists (NAZIs) were just another political party with limited influence until the money printing inflation cycle drove the German economy to a terrible crisis.  This all made people turn to Hitler for a solution and we all got the holocaust of World War Two with 60 million dead.

I believe that Shaffer’s theory of a massive price reducing deflation instead of hyperinflation must be considered as a real possibility.  It is certainly another possible outcome of the current economic crisis.  Prices could dramatically fall when government spending is inevitably withdrawn.

Is it more likely that prices will collapse as government withdraws spending?  Are we headed into a deflationary downward spiral or is it more likely that massive inflation will occur as governments print more money?

We don’t know for sure.  Our debt situation and money printing policies are similar to the Weimar Republic of the 1920s but the argument for deflation is also compelling.  Will prices drop dramatically or will they inflate beyond all expectations?  Either way we appear to be headed for a crisis in the world.  We have been there before but the results were not good.  When economies collapse and order is gone people yearn for someone to restore order.  That person or persons could become a detriment to the whole world like Hitler was in the 1940s.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015.   Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

Advertisements

A new wave of foreclosures is expected while housing prices decline for 6th staight month. What does it mean?

According to an article in Smart Money last month foreclosure sales are still flooding the real estate market in America.  35% of all home sales in January were foreclosed homes or for short sales.  This amounts to 91,100 properties in January and this number was up 29% from the month before.

The head of a real estate research firm predicted that this will cause a decrease in prices for homes in the next year.  Statistics have indeed showed that the median home price has declined 8.5% since June of 2011.  This same analyst predicted in the article that home prices are going to go down for a long time to come.

In the city of  Las Vegas foreclosures accounted for 59% of all sales and in Sacramento 50% according analysis done by RealtyTrac.  Other cities have similar statistics.  There is a huge number of foreclosures coming back to the banks currently and these foreclosures are then going back on the market for sale.  This flood of foreclosures will continue to press home prices lower in the future according to analysts.

This is exactly what an article in Yahoo Finance stated yesterday.  According to that article home prices dropped for the 6th straight month in a row.  The Case-Shiller housing price index reports that housing prices dropped in February in 16 out of the 20 cities tracked.  Atlanta, Chicago and Cleveland saw the worst declines while San Diego and Phoenix saw price increases.  This represents a 35% decline in home prices since the recession hit and home prices are now at 2002 levels.

Another article came out in Reuters that a new wave of foreclosures is expected.  In that article they predict that 2012 will be a bigger year for foreclosures than 2011.  Just when you thought it was over.  But it is not over.  Many in the article predict a growing number of foreclosures ahead.  They point to the statistics that show that many major banks and many major cities are showing a rise in foreclosures.

The Reuters article points out that the toxic mortgages are now gone.  Sub-prime, and balloon payments, and negative amortization mortgages have been foreclosed on or short sold and are no longer in effect.  Now we have regular mortgages that are being foreclosed on.  Mortgages with normal interest rates and fixed rates for 30 years.  Mortgages that are owned by regular working families.  Families who are extremely responsible but still can’t afford the mortgage.

These people are being stressed now.  They cannot afford the mortgages I argue because the price of everything is going up especially food and energy which are not counted in government inflation statistics.  That is what I argue in this blog http://bit.ly/HUNMNJ .

But it is clear that the housing/foreclosure is not ending but may get worse and be with us for some time.  I believe that we underestimated the depth of the crisis from the beginning.  I had realtor tell me years ago that this was serious.  At a realtors convention he was told to expect 10 years of depressed prices in real estate.

The amount of foreclosures is astounding and these all have to be put on the market at some time and they will depress it.  Indeed there appears to be a shadow market of these homes that the banks are holding off the market as I argue here  http://bit.ly/IUF0k0.  When these homes are put on the market instead of being kept off, prices could decline further.

So with home prices declining, foreclosures increasing, and prices of living increasing we have a perfectly bad storm it appears.  The government printing of money and the resulting devaluation of currency is increasing prices of food and energy so that people can’t afford their homes.  This stresses their finances so they cannot afford their homes which leads to more foreclosures and more homes on the market.  We seem to be in a downward spiral economically.  Don’t expect housing prices to go up anytime soon.  It is also a good time to take care of unneeded unsecured debt do you can afford to pay for your home.

I am a San Diego bankruptcy attorney.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com for more info. about any of these topics.  Or call my office for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

San Diego unemployment rises in March as does American food stamp usage. What does it all mean?

Here in my city of San Diego unemployment has increased in March much to everyone’s surprise. This was detailed in an article in the San Diego Union Tribune.  This fact certainly calls into question whether there is a recovery occurring at all in San Diego.  According to the article San Diego would need to add 20,000 to 25,000 jobs per year but only 6,700 are currently being added.  This is far short of what is needed for a full recovery according to some economists.

This article also explains that California unemployment is on the rise.  California unemployment rose to 11% in March.  18,000 jobs were created in California in March and that may sound like a lot but 2 million people still are unemployed in the state.  They also mention in the article that nationwide there seems to ba a decrease in unemployment.  I would argue thought that this nationwide rise in employment looks good but must be balanced against other factors. (See here for my blog on unemployment is rising when the governement says it is not).

For instance the Wall Street Journal reports that 34 million people are on food stamps currently and that is an all time high.  This represents an increase of 70% since 2007 and 1 person in 7 is now on food stamps.  A 70% increase is significant and calls into question the state of the economy as a whole.  Are these people receiving food stamps unemployed or are they people with jobs? Are the employed (or underemployed) getting on food stamps because they can’t afford to buy food with their salaries?

Another article in Investor’s Business Daily tells of an increase in the number of people on disability.  Are suddenly getting more disabled in this country or is something else happening?

I believe something else is happening.  First of all more people are out of the work force than ever according to recent articles.  As they come back into the work force this could increase unemployment.  But also you have this massive over-spending by government and “quantitative easing” or straight money printing.  As I argued in a blog (http://bit.ly/I9XMnU) about governments like the Weimar Republic who choose to print money,  massive money printing can only lead to massive devaluation of the currency.  This devaluation in turn leads to a huge increase in the prices of foodstuffs.

We are seeing prices go up dramatically in the past two years especially in the area of food and energy.  I also blogged about this phenomenon some time ago  ( http://bit.ly/IahMZf).  These increases in food have even caused farmland to increase in prices.  There was a story today on Fox Business how farmland is currently selling for very high prices when it just recently used to be very cheap.  It only makes sense that this is happening because food is a commodity that is increasing in price so it will become more profitable to produce in the future.  It is also true that food and energy are increasing but government inflation figures do not reflect this because they conveniently exclude food and energy from inflation measures.

So it appears that prices are up and currency values are down and unemployment is sideways.  It is also true that government figures usually don’t reflect real world conditions.  This is why I belive that people are getting on food stamps and disability.  Even if they are employed full-time they cannot afford the ever higher prices for everything today.  Even two income couples are struggling especially if there are kids.

The underemployed and unemployed are even in a worse condition than the employed.  But employed people on food stamps in these large numbers is a new phenomenon in America.  It used to be that you got off food stamps as soon as you got a job.  I suspect that is not the case today.  People are staying on food stamps no matter what because they simply can’t afford the ordinary costs of life.  The food stamp statistics reflect this reality.

My clients who I see in my office every single day also reflect these changes in society.  They come to see the bankruptcy attorney  to get out of their old debt which they certainly can’t afford.  They can barely afford their current expenses as commodity prices increase but their wages do not.  For my clients bankruptcy can eliminate the old debt and make it easier to go forward.

We do not know if there is a recovery but there are other economic factors out there affecting everyday people.  With prices on the rise and the government not admitting it I expect to see many more bankruptcies in the future out of necessity.  It is not a matter anymore that is even subject to debate.  Many of my clients do not anymore debate whether it is worth it to file bankruptcy.  It is literally a case of having enough food on the table.  Food that will undoubtably cost more next month.

I am a San Diego bankruptcy attorney.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

Can I file bankruptcy a second time? Yes, and with stubbornly high inflation, unemployment rates, and the housing crisis you might well need to!

economy 2If you want to file for bankruptcy a second time you just have to wait the required eight years since the last time you filed.  Don’t Guess Againworry it goes by quickly!  Many people find that they get into the same situation as they were in before after eight years have gone by.  The country’s unemployment situation does not appear to have improved, the price of everything is going up as inflation worsens, and the nation’s housing crisis continues. (See here for additional reasons for why you should file for bankruptcy).

I read an article yesterday that gas prices have increased by over 80% in the last three years.  Many food prices have increased by 20% in the same period but the government uses an inflation measure that excludes food and energy prices so their statistics do not reflect real inflation.  This seems ridiculous because food and gas are the items that people buy the most.

With our astronomical 15 trillion deficit many of us believe that massive inflation is coming for America which will render our currency increasingly worthless.   I heard a story the other day about inflation in the Wiemar Republic in Germany in the 1920s.  There the cash was so worthless in 1920s Germany that crooks stole only the wheelbarrows that people carried the cash in and dumped the cash in the street.

Unemployment is also staying high and is also under counted by the government. We are told that unemployment is declining but we also find out that increasing numbers of people are leaving the job market altogether and are thus not being counted in government statistics.  We apparently have the lower number of adults working in America that we have ever had before in our history. (See here for my blog on the unemployment is rising because people are leaving the labor force).

As we have known all along many people are giving up on finding a job and are either living off the government or are living on money earned under the table and off the radar.  These people usually are surviving on such little money that they should be counted as at least underemployed if not as unemployed.  This many unemployed people not being counted makes the unemployment situation look far better than it really is.  I hate to say it but it appears that the government has an agenda to advance in these statistics on inflation and unemployment and these government supplied numbers should therefore be questioned or ignored.

The housing crisis also seems to have no bottom.  Houses are still being foreclosed in in great numbers and thus housing prices are not rising in some areas and still falling in others.  Many are facing an iminent foreclosre of their home due to this crisis in real estate and the realtors I talk to say they don’t see any end in sight for this.  With the glut of foreclosed homes on the market the prices of homes will not increase again for some time.  Many who are unemployed cannot afford to pay their mortgages now.

unemployment 4Many people believe that with our massive debt at the federal, state, and local levels we are headed for financial collapse.  I don’t know if a massive collapse is coming but it’s clear that massive inflation and continued high unemployment are a distinct possibility.  Collapse has happened before in history with the Wiemar Republic and with other societies that failed to get their debts in order.  If we are headed for these increasingly difficult economic times then it would certainly be easier to enter them without a tremendous debt load.  Bankruptcy can accomplish that.

If massive inflation comes will help pay down the government’s debt but it will devastate individuals and families financially as it dramatically increases the prices we pay for everything.  If unemployment remains high too then many people will continue to have medical, credit card, auto repossesssion, and other personal debts they  pay.  Many will continue to borrow on their credit cards as they have in the past out of necessity and not irresponsibility.

If any of this sounds familiar then you might want to consider filing bankruptcy.  Don’t be like the government and put you head in the sand.  Deal with your debt in a responsible, legal, and ethical way which is what you get with a bankruptcy discharge.  You can also significantly slow down or stop your home being sold at foreclosure with a bankruptcy.

All of this debt, unemployment, and foreclosure will lead many individuals and couples right back into a situation where they cannot pay their debts.  Once they stop paying these creditors the phone will start ringing again 24 hour a day from collection agents who ceaselessly try to collect these debts.  The result of this will be more people will need second time bankruptcies.  So don’t despair if you have accumulated debt in the last number of years because you can file bankrupty again.

If you filed in 2005 like millions did to avoid the bankruptcy law changes then you will be able to file next year in 2013.  You only have to wait eight years.  If you filed in October of 2005 like many did the you should look to file again around October of 2013.  Remember that millions of individuals are in the same position as you are so don’t despair.  Just call a good bankruptcy lawyer now and he will help you survive financially until the eight years has elapsed.

There are many strategies for managing these debts in the mean time including paying them something to get them off your back.  A good lawyer will help you manage you finances until the date arrives that you can file for bankruptcy again.  For an update on filing bankruptcy a second time see here.

I am a San Diego bankruptcy attorney.  For further information please visit my website at www.freshstartsandiego.com or www.farquharlaw.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

The economy is so bad photo courtesy of Mark Holloway.  Guess again photo courtesy of Damian Gadal.  Unemployment photo courtesy of Sean MacEntee.

Commodity prices are going up, the dollar is dropping in value! It might be a good time to file bankruptcy.

(See my update on price rises and its affect on the economy: http://bit.ly/HUNMNJ.)

There has been a lot of talk about possible deflation or a spiraling price drop in the market.  This does not seem to be happening as commodity prices are going up across the board.

It started with gold but oil is up as are wheat and corn and milk and meat and just about everything else too.  There is an article in today’s LA Times talking about how prices for all commodities are going up, not just oil and gold.  Coffee, wheat, sugar, rice, cotton, soybeans, paper, cheese.  It’s all going up.

Inflation worries are returning.  Bad weather resulting in poor harvests are to blame but so is increasing demand from India and China.

US retailers and sellers of these goods like Wal-Mart and Kraft and General Mills have all announced that they will raise prices soon.  Some by as much as 40%.  This current situation appears to be highly inflationary and it doesn’t appear to be temporary.  I don’t think demand from China and India is going to lessen.  In fact it should increase over time driving prices even higher.  You should notice this at the grocery store soon.  All of your food, gas, an everything you need to buy is getting more expensive.  It looks like inflation will take over and not deflation.

The other important thing happening here is that the dollar is dropping.  It has dropped more than 12% since June against the other major currencies.  According to the LA Times this is because our government wants it to!  It appears to be the policy of our government currently.  They seem to think that our products will get cheaper so other countries will buy more.  But what about the US consumer?  How will he or she pay for these higher prices?

This drop in the dollar has caused investors to look for a way to buy something that will hold its value.  Investors often look to commodities when faced with this currency devaluation.  Investors buy up all of these commodities to preserve their wealth and in doing so they drive up the prices of the everything we consumers need.

This results in huge price increases for the consumer and thus I would argue that this is a foolish policy by the US government that is hurting the american people.  Americans are not getting a raise to pay for these increasing prices and in fact many people are unemployed with no prospect of finding a job.

It could also be government policy to encourage inflation as a way to pay back the huge debts with cheaper dollars.  Apparently the government is printing more dollars which is inherently inflationary.  It could be that the policy is to inflate our way out of these huge debts.  This was tried many times most notably under the German Weimar in the 1920s where hyperinflation did not save but actually destroyed the economy.  At the end of that mess Hitler came to power.

The reality for you and me in the stores now is that commodities are getting more expensive because it takes more dollars to buy them because of a faulty government policy of currency devaluation.

I would argue therefore it is a good time to file bankruptcy if you have old debts you cannot pay.  You may need your money just to buy groceries, supplies, and the other things you need to ride out this recession.  Don’t give your money to some creditor for some old debt that went to pay for something you forgot about if you need what little money you have just to survive today and into the future.

I am a bankruptcy attorney practicing bankruptcy law in San Diego CA.

For further help please visit my websites at: www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.