U.S. consumers spent more on autos, clothing and furniture in September to boost retail sales by the most in seven months. The gain offered a hopeful sign for the sluggish economy.
The Commerce Department says retail sales increased 1.1 percent last month.
Auto sales rose 3 free online credit report.6 percent to drive the overall gain. Excluding that category, sales increased a solid 0.6 percent.
A year ago, we launched Moneyville with an excerpt from The Wealthy Barber Returns, the long awaited sequel to the bestselling book written 21 years ago by David Chilton.
The chapter used the story of a French philosopher redecorating his apartment as a proxy for what great spenders we have become 240 years later, seduced by the many easy ways we can borrow money, particularly lines of credit. There were no lines of credit in 18th Century Paris, nor did consumers have them as little as 20 years ago. But we have increasingly found them irresistible, treating the convenience and interest-only repayment schedules as a second income, rather then debt. They help us buy things we can’t afford and haven’t saved for, which is rather far from their original purpose of allowing us to borrow for large, unanticipated expenses that in the old days needed a fixed-term loan from the bank. A weeklong Moneyville series this winter, revealed that for some people line of credit spending is running wild.
The Wealthy Barber Returns has been in book stores for a few weeks and is already a bestselling Canadian title. Moneyville’s review by Ellen Roseman said many readers will find the message disturbing. Easy credit is killing us and we’re deluding ourselves about how we can stay in debt all our lives and still have a comfortable retirement.
We sat down again with Chilton to get his thoughts on how things have changed since the original Wealthy Barber was published. The good news is that we’ve started to save more, but the bad is that we’re spending even faster.
“The single biggest change in the last 20 years is that debt has escalated,” says Chilton. “And there are three reasons. Interest rates are low, so that you’re not punished so much for borrowing, lines of credit have made it easy to spend and average credit card limits have gone up.”
He believes our attitudes have also changed so that we aren’t as frightened of debt as we once were and at the same time have become consumed by consumption. “You want what you want when you want it,” he says. And lines of credit make it that much easier with money that seems almost free.
Chilton tells a story in the book about a woman who borrowed $60,000 from her credit line to help her son renovate his bathrooms. She assured Chilton it was nothing to worry about, because the reno only cost her $150 a month.
“I can afford it,” she said.
She reasoned that at her borrowing rate of 3 per cent, the $60,000 cost $1,800 a year in interest which worked out to the $150 a month or $5 a day. What’s the big deal? She was conveniently forgetting her principal repayment. The real cost was $150 a month, plus $60,000.
“That’s the thing,” Chilton says. “Many people with lines of credit have no plans to pay them back.”
Since these debts are usually secured by the equity in homes, they have essentially become reverse mortgages business card templates. Ater spending 25 years to pay off a mortgage, homeowners using their home as the security for new borrowing. What many don’t realize is that banks can call a line of credit at any time. They don’t because they’d rather have your monthly payment along with the debt. But they can.
These perpetual payments are robbing us of the ability to put money aside for retirement or into tax free savings accounts or even our kids RESPs.
“The issue is not about default,” Chilton says, “but not having enough money to save.”
Another worrisome trend is the attitude of young people towards saving and spending which is very much skewed toward instant gratification. Young people have access to debit and credit from an early age, much earlier than their parents did. “A lot of kids move out and want the same lifestyle as their parents right away, not realizing that it took their parents 25 years to achieve it,” he says.
And you shouldn’t look to your banker for help. The more they lend, the more profitable they are, so their incentive is make borrowing easy.
“Banks are businesses like any other,” Chilton says with a shrug. “Loblaws sell groceries, the Star sells newspapers, Dave Chilton sells books. Banks lend money.”
Chilton is a single parent, living Waterloo and has never had a line of credit. To be fair, unlike many of us he doesn’t really need one. Nor has he ever used a cash machine or a debit card. He pays wherever possible by cash because it makes the purchase real. He says the only reason he has a credit card is that he has to have to have one to travel – you can’t book a hotel room or airline ticket without one.
Looking to the broader economy Chilton sees governments facing on a larger scale what we face as individuals. The developed world has been living beyond its means and it has caught up to us. The developed world’s solution has been to lower interest rates to encourage more spending and the accumulation of more debt.
“I’m surprised we haven’t learned our lesson,: he says. “Solving crises with ever cheaper money leads to worse problems down the road. We’re going to have to put up with slow growth, which another reason why living within your means is a good thing.”
In the meantime he advises some simple remedies when you feel the urge to spend or peer or kid pressure makes you want to pull out some plastic. It’s all about four liberating words: I can’t afford it.
According to Chilton it’s an easy step to regaining control. Instead of trying to keep up with the Jones’ let them keep up you.
Win a copy of The Wealthy Barber Returns
Send an email to editor@moneyville.ca by the end of day Tuesday for a chance to win a copy of The Wealthy Barber Returns. The first five names drawn win a book.
The international bank lobbying group that has been leading negotiations on giving debt-ridden Greece easier terms for its bonds on Sunday rejected calls to impose larger losses on private investors.
Forcing private creditors to write down their Greek bond holdings by more than the 21 percent tentatively agreed to in a July deal would quickly cause a “domino effect” that would see the crisis spread to other parts of Europe, warned Josef Ackermann, the outgoing chairman of the Institute of International Finance.
Such a move would ultimately cost taxpayers much more than just bailing out Greece and erode confidence in the euro, said Ackermann, who is also the CEO of Germany’s Deutsche Bank, a major lender to Greece.
Germany and other rich eurozone nations have been pushing for a re-negotiation of the July deal, arguing that the economic situation in Greece has significantly deteriorated since then and may require a steeper cut in the country’s debt load.
However, Ackermann quickly rejected that push, saying that the agreement was fair and already placed a heavy burden on banks at a time of major market turmoil.
“If we now start reopening this Pandora’s box we will lose a lot of time and I’m not sure people would be willing to participate,” Ackermann told a news conference on the sidelines of the annual meeting of the International Monetary Fund.
Under the July deal, Greece is asking banks and other large private investors to swap their existing Greek bonds for ones with longer repayment deadlines, a lower face value or lower interest rates. The IIF says the deal would save Greece some euro54 billion by 2014 and euro135 billion by 2020.
However, most analysts say that those savings are far too small to make Greece’s massive debts _ which amount to some 160 percent of economic output _ sustainable again. At the same time, there have been growing doubts that investors will agree to swap 90 percent of their bond holdings, a minimum threshold that Athens set to make the deal worthwhile.
Getting private creditors to agree to the deal comes at a heavy cost for Greece. Apart from temporarily being rated in “selective default” _ a first for a eurozone nation _ the country has to spend some euro42 billion on setting up a collateral fund that would secure the remaining value of the bonds.
If at some point Athens decides that a steeper cut in its debt was necessary, that money would go to the bondholders.
“If the July deal goes ahead, Greece would be locked into this perpetually,” said Sony Kapoor, managing director of Re-Define, a Brussels-based economic think tank.
Greece has been relying on euro110 billion in rescue loans from other eurozone countries and the International Monetary Fund since May 2010. In July, when it became clear that Athens needed more help, eurozone leaders agreed on a second, euro109 billion bailout, although several aspects of that deal still need to be finalized.
To make the second aid package acceptable for their taxpayers, several rich countries led by Germany pushed for banks and big insurance companies to share some of the pain of bailing out Greece _ despite opposition from the European Union and the European Central Bank, the central bank for the 17 nations that use the euro as a common currency.
But since July, the eurozone’s debt crisis has significantly worsened, partly because investors now fear that they may also face losses on bonds from already bailed-out Portugal and Ireland as well as struggling Italy and Spain. The Greek economy is now set to shrink 5.3 percent this year, up from a June estimate of a 3.8 percent decline, followed by a further contraction in 2012.
Stock futures are plummeting after the Federal Reserve indicated the U.S. economic slump could last for years.
The Fed took steps to stimulate the economy Wednesday that had largely been expected. But investors were troubled because the central bank’s statement showed it expected a deep and persistent downturn.
A government report Thursday morning on new claims for unemployment benefits will give traders news on the country’s jobs crisis _ one of the major economic challenges cited by the Fed.
Ninety minutes before the opening bell, Dow Jones industrial average futures are down 211 points, or 1.9 percent, at 10,796. Standard & Poor’s 500 index futures are down 24, or 2.1 percent, at 1,131. Nasdaq 100 futures are down 43, or 1.9 percent, at 2,202.
Drivers of electric and other alternative-fuel vehicles enjoy a special perk: They can drive solo in California’s carpool lanes.
But under a controversial plan proposed by local traffic agencies, those drivers will have to pay to use two heavily used carpool lanes that are being converted to toll roads.
It has riled electric-car shoppers and alternative-fuel-vehicle advocates who worry that this is the first step in chipping away at a California tradition of letting solo drivers of autos with new technology and low emissions into carpool lanes paydayloans.
Officials plan to convert 25 miles of freeway carpool lanes into toll lanes. Carpoolers and buses will be able to use the lanes for free, while solo drivers
Imagine a nation without the Postal Service.
No more birthday cards and bills or magazines and catalogs filling the mailbox. It’s a worst-case scenario being painted for an organization that lost $8.5 billion in 2010 and seems headed deeper into the red this year.
“A lot of people would miss it,” says Tony Conway, a 34-year post office veteran who now heads the Alliance of Nonprofit Mailers.
Businesses, too.
The letter carrier or clerk is the face of the mail. But hanging in the balance is a $1.1 trillion mailing industry that employs more than 8 million people in direct mail, periodicals, catalogs, financial services, charities and other businesses that depend on the post office.
Who would carry mail to the Hualapai Indian Reservation in the Grand Canyon? To islands off the coast of Maine? To rural villages in Alaska? Only the post office goes to those places and thousands of others in the United States, and all for 44 cents. And it’s older than the United States itself.
Ernest Burkes Sr. says his bills, magazines and diabetes medication are mailed to his home in Canton, in northeast Ohio, and he frequently visits the post office down the street to send first-class mail, mostly documents for the tax service he runs. As his business increased over the past three decades, so has the load of mail he sends, and it’s still pretty steady.
“I don’t know what I’d do if they’d close down the post offices,” said Burkes, who doesn’t use rival delivery services such as UPS or FedEx. “They need to help them, just like they helped some of these other places, automobiles and others.”
Postmaster General Patrick Donahoe is struggling to keep his money-losing organization afloat as more and more people are ditching mail in favor of the Internet, causing the lucrative first-class mail flow to plummet.
Donahoe has a plan to turn things around, if he can get the attention of Congress and pass a series of hurdles, including union concerns.
“The Postal Service is not going out of business,” postal spokesman David Partenheimer said. “We will continue to deliver the mail as we have for more than 200 years. The postmaster general has developed a plan that will return the Postal Service to financial stability. We continue to do what we can on our own to achieve this plan and we need Congress to do its part to get us there.”
He acknowledged that if Congress doesn’t act, the post office could reach a point next summer where it doesn’t have the money to keep operating.
That wouldn’t sit well with Mimi Raskin, a wine and antiques store owner in Grants Pass, Ore., who likes her birthday card mailed. “If you get a birthday card on the Internet, it’s like, well, I didn’t care about you enough to go to a store, buy a card that suited your personality, and mail it,” she said.
Donahoe and his predecessor, John Potter, have warned for years of the problems and stressed that the post office will be unable to make a mandated $5.5 billion payment due Sept. 30 to a fund for future medical benefits for retirees.
A 90-day delay on the payment has been suggested, but postal officials and others in the industry say a long-term solution is needed.
Donahoe has one. It includes laying off staff beyond the 110,000 cut in the past four years, closing as many as 3,700 offices, eliminating Saturday delivery and switching from the federal retirement plan to one of its own.
Cliff Guffey, president of the American Postal Workers Union, called the proposal “outrageous, illegal and despicable.”
A contract signed in March protects many workers from layoffs. Guffey said the attempt to change that now “is in utter disregard for the legal requirement to bargain with the APWU in good faith.” Other unions, including the National Association of Letter Carriers, are negotiating their contracts with the post office.
Yet Donahoe’s efforts are drawing praise from people such as Conway, the head of the nonprofit mailers, who says these are necessary steps that officials have shied away from in the past.
Several bills proposing ways to fix the agency are circulating in Congress. One, by Rep. Darrell Issa, R-Calif., would impose a control board to make the tough decisions.
When it was first introduced, the bill was perceived as “way out there,” Conway said. But as the postal financial problems have become more obvious, “you’re seeing people thinking maybe it isn’t that extreme.”
Gene Del Polito, of the trade group American Association for Postal Commerce, said now that Donahoe has offered a plan, “why not give him the authority do to do what needs to be done.” If that fails, then a control board could be instituted, he said.
Closing offices seems an easy way to save, but members of Congress never want cuts in their districts, and while the public may mail less, people still want their local office to stay open.
The changes that Donahoe are proposing would mean a different post office, but one that still operates for people such as Jovita Camesa, who’s 75 and lives in a downtown Los Angeles retirement complex. She said she’s sending more first-class mail than ever due to her expanding circle of grandchildren.
Camesa said she wouldn’t think to use the Internet for those birthday and holiday greetings, or start going online to seek out the articles she now reads in the issues of Vogue, Readers Digest, Prevention and other magazines that are delivered to her. “I’m not interested in the Internet or computers,” she said. “I’m very traditional.”
Ellen Levine, editorial director of Hearst Magazines, told a Senate hearing that the Internet has not eliminated the need for mail delivery of magazines.
“Nearly all publishers use the United States Postal Service to deliver their magazines to subscribers,” she said. “While most consumer titles are also available on newsstands, mail subscriptions will remain the major component of hard-copy magazine circulation in the United States for the foreseeable future.” Overall, Levine said subscriptions account for about 90 percent of magazine circulation.
Olive Ayhens, an artist who lives in Brooklyn, N.Y., says she pays her bills online but still uses first-class mail. She was mailing announcements of her newest gallery opening; one was going to her son in London.
“Less than a dollar, I’m sending to London,” she said during a stop at the James A. Farley Post Office in Manhattan.
The internet, along with the advent of online bill paying, has contributed to a sharp decline in mail handled by the post office, from 207 billion in 2001 to 171 billion last year. Although the price of stamps has increased from 34 cents to 44 cents over the same period, it is not enough to cover the post office’s bills, in part because of higher labor costs.
Yet one of the biggest problems isn’t mail flow or labor or other costs. Rather, it’s a requirement imposed by Congress five years ago that the post office set aside $55 billion in an account to cover future medical costs for retirees. The idea was to put $5.5 billion a year into the account for 10 years. That’s $5.5 billion the post office doesn’t have.
No other government agency is required to make such a payment for future medical benefits, so why not drop it for the post office.
Like everything in Washington, it’s not that simple.
The Postal Service is not included in the federal budget, but the Treasury Department account that receives that payment is.
That means that when the post office deposits that money, it counts as income in the federal budget. So, if it doesn’t make the payment, the federal budget deficit appears $5.5 billion bigger, something few members of Congress are likely to favor.
In announcing his bill, Issa warned of a need to avoid a “bailout” of the post office, which does not receive taxpayer money for its operations.
Others, however, have characterized the $5.5 billion payments as a post office bailout of the federal budget because it makes the deficit appear smaller.
“We have made that argument,” said Del Polito. But it has been rejected with the argument that the payments are required by law and ending them requires a change in the law.
That problem of appearing to increase the federal deficit creates a reluctance to deal with the matter directly, Del Polito said.
So where does that leave the post office and those Americans who don’t have access to the internet?
Sen. Joe Lieberman, I-Conn., suggested more people start sending passionate letters as a way to save the agency.
As good an idea as love missives may be, they are unlikely to be enough.
___
Associated Press writers Jeff Barnard in Grants Pass, Ore.; Deepti Hajela in New York; Bob Johnson in Montgomery, Ala.; Kantele Franko in Columbus, Ohio; and Jacob Adelman in Los Angeles contributed to this report.
President Hugo Chavez signed a decree on Tuesday formalizing the nationalization of Venezuela’s gold mining industry, a move aimed at giving the government total control over gold produced in the South American country.
Speaking during a televised speech, Chavez also announced the repatriation of $11 billion in Venezuelan gold reserves currently held in U.S. and European banks would begin within several weeks.
Chavez did not offer details how the new decree differs from a 1965 law that nationalized gold mining. In 1977, the government granted itself exclusive rights to extract gold. But he suggested it would give authorities increased powers to evict wildcat miners from illegal mines.
The president said that officials have contacted representatives of the company Rusoro Mining Ltd., the one private company with significant mining operations in Venezuela, to continue joint gold mining operations.
Rusoro produces gold both at an open-pit mine and an underground mine that is a joint venture with the government. The company, based in Vancouver, British Columbia, has said it has had no indication from the government “of any changes to the company’s operations.”
In February, the government canceled the gold mining concession of a Canadian company, Crystallex International Corp.
In addition to repatriating gold reserves, the president of Venezuela’s Central Bank has said the government plans to move other international assets to buffer the country against economic woes in the United States and European countries payday loan online.
Some analysts have said moving Venezuela’s reserves will make investors see the country as riskier.
The government is looking at the possibility of transferring its non-gold reserves to banks in China, Russia, Brazil and other nations in Asia and Latin America, according to a recent report by Finance Minister Jorge Giordani that was leaked to the local news media.
The report said that about $3.7 billion of those bank reserves are at the Switzerland-based Bank for International Settlements. It said Britain-based Barclays Bank has about $1.1 billion and smaller amounts are held at France’s BNP Paribas, Deutsche Bank, J.P. Morgan Chase, the U.S. Federal Reserve and World Bank.
Venezuelan Foreign Minister Nicolas Maduro met with his Russian counterpart, Sergei Lavrov, on Tuesday to discuss the possibility of transferring Venezuela’s non-gold reserves to Russian banks.
“It’s an issue that our government is considering,” Maduro said.
President Barack Obama declared on Monday there would be no deal on raising the government’s debt limit if Republicans won’t compromise, and he said he would not sign a short-term extension _ raising the stakes on volatile negotiations with the clock ticking toward a Aug. 2 deadline.
“I don’t see a path to a deal if they don’t budge. Period,” the president said in a challenge to his political opponents, accusing Republicans of having a “my way or the highway” posture.
Asked whether or not he would veto legislation temporarily increasing the debt ceiling, the president said: “I will not sign a 30-day, or 60-day, or 90-day extension.”
The president warned that failure to reach agreement could create another recession and throw millions of Americans out of work, painting a picture of catastrophe if a partisan stalemate is not broken and Congress fails to act. He criticized politicians who say the debt ceiling doesn’t need to be raised.
“It’s irresponsible. They know better,” Obama said.
The president spoke at a White House news conference the morning after convening a rare Sunday meeting with lawmakers in the White House Cabinet Room, where he continued to push for a “grand bargain” in the range of $4 trillion worth of deficit cuts over the coming decade. That ran into Republicans’ refusal to raise taxes.
Obama conceded that House Speaker John Boehner, who pulled his support for a large-scale deal over the weekend, faced a potential revolt by his caucus, and suggested Republicans should take a political risk _ as the president said he is.
“I am prepared to take on significant heat from my party to get something done,” Obama said, contending he has “bent over backward” to work with Republicans.
The Federal Reserve is set to limit the fees that banks charge retailers for swiping debit cards to 21 cents, a higher cap than initially proposed.
Banks succeeded in convincing the Fed that its initial proposal of 12 cents was too low after a six-month lobbying blitz. They currently charge an average of 44 cents per swipe.
The Fed will formally adopt the rule Wednesday, which was required under the financial regulatory law enacted last year. The rule takes effect Oct 1, later than expected.
In addition to the 21-cent cap, the rule will also allow banks to charge a fraction more to cover the costs of fraud prevention.
The move to limit swipe fees pitted the nation’s largest banks and payment processors like MasterCard Inc. and Visa Inc. against Wal-Mart and retailers of all sizes. The decision to settle on a higher cap pushed up bank and network stocks in late afternoon trading on Wall Street.
Banks said roughly $16 billion was at stake if the 12-cent cap took effect. That would be more than 80 percent of the $19.7 billion in debit transaction fees paid by merchants in 2009, according to the Nilson Report, which tracks the payments industry.
The banks warned that they would have to make up for some revenue lost by shifting costs to consumers. Many already eliminated unrestricted free checking accounts, and some ended debit card rewards programs. Other potential actions include annual fees for using debit cards, which are already being tested in some markets.
The higher cap may lead some to avoid taking such action.
Merchant groups said that their savings would be passed on to customers in the form of lower prices. But many questioned whether retailers would simply pocket the difference. Some big retailer stocks declined late in Wednesday’s trading session no fax payday loan.
Banks and credit unions with assets under $10 billion are exempt from the rule, under the premise that they rely more on swipe fees, also known as interchange fees. But those smaller institutions argued that the exemption won’t help. That’s because it invites merchants to discriminate against their cards. It also leaves the decision on which network to use to process the transaction in the hands of merchants, who could choose to bypass networks that charge higher fees.
Fed Chairman Ben Bernanke acknowledged small banks’ concerns during a May 12 hearing by the Senate Banking Committee. He said allowing them to charge more than big banks for processing debt card transactions could make debit cards issued by smaller banks less attractive to merchants.
“There’s good reason to be concerned about it,” Bernanke said. It could result in some smaller banks “being less profitable or even failing.”
Separately Wednesday, a federal appeals court in South Dakota ruled that a lower court judge was correct to deny a preliminary injunction against the fee limits taking effect.
The case challenging the regulations’ constitutionality was brought in October by Minnesota-based TCF National Bank, the unit of TCF Financial Corp., considered the first bank to offer free checking accounts. TCF is among the banks that no longer offer free checking without requirements such as using direct deposit or maintaining minimum balances.
In a twist, TCF’s attorneys argued that the provision of the law exempting small banks and credit unions gave those unaffected banks an unfair advantage.
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