This Week’s Economic Hard Truth

September 13, 2008 by  
Filed under Economics, Loans and Borrowing

Mr. ToughMoneyLove tries to pay attention to economic news because it is science-based and therefore more reliable than the financial punditry that is all over the news and Internet.  In fact, I just finished listening to a 7 CD audio course book on the Principles of Economics, which I will be reviewing soon. 

The economic headlines this week were mostly negative.  Retail sales for August fell 0.3%, worst than forecast.  Combined with the 1.1% rise in July business inventories, this is a definite indicator of continuing weakness in the U.S. economy. 

The other bad news is that the U.S. trade deficit rose to $62.2 billion in July, also higher than forecast.  Trade with China and Europe continues to slide, with the trade gaps increasing by 16.1% and 19.6% respectively.  I can understand the gap with China but we should be closing the gap with Europe based on the weak dollar vs. the euro.  Now, with the dollar strengthening again, things could get ugly.   

Use of consumer credit jumped $4.6 billion in July, lower than estimates and likely the result of tightening credit standards and a fadeout of the stimulus checks.  Isn’t it amazing how American “spend before the end” consumers can leverage government stimulus checks into yet more debt?  

The somewhat good news this week (if you ignore the “failure” part) is that with the failure then government takeover of Fannie Mae and Freddie Mac, their borrowing costs went down, causing a drop in mortgage interest rates.  If there are any homeowners out there with equity and positive cash flow, a re-finance from a 30 to 15 year term could be a good strategy.  But please avoid the temptation of a cash-out re-fi. 

This week Mr. ToughMoneyLove was selected to participate in the Carnival of Financial Learning #15 with my post Let’s Make the Politicians Take Economics 101. 

Let’s be sure to set aside a few minutes this weekend to pray for the safety of those affected by Hurricane Ike.

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2 Responses to “This Week’s Economic Hard Truth”
  1. Andy says:

    To me one of the biggest long term issues (up there with Social security funding and healthcare reform) is our National debt problem. It is going to continue to mount and just like the big financial instiutions collapsed under their actual and potential debt obligations, USA Inc could be headed for a big bad fall.

  2. The “negative” of the US government takeover of the big institutions is that people who have spent instead of paying down their mortgage are now going to be rewarded by “not being repossessed” – if that makes sense. In the UK, the rate of repossessions has slowed up in the last few months, after half a year of craziness. It sometimes makes me wonder why I work hard, and yet the government lays it on a plate for others.

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