Many different countries rely on consumer spending in the United States to support their economies. Many domestic companies also rely on strength in foreign economies to support themselves, meaning that U.S. stock markets could see a further slide if other countries are significantly affected by any problems in the United States. A global slowdown isn't good for anyone...

From Reuters:
Mexican consumer lending by banks, expected to be a key motor of the economy this year, grew 19 percent in December, a slower pace than in previous months, according to a report on Thursday. Consumer credit barely existed in Mexico when its economy was dragged down by the last U.S. recession six years ago.  Mexico cut its economic growth forecast for 2008 on Wednesday to 2.8 percent from 3.7 percent as a possible recession loomed in the United States, its top trade partner.

MasterCard announced its earnings today and in it offered great insight into the economy of the United States and consumer spending. Among its notes, the company said American spending was shifting from discretionary purchases (those that aren't needed) to staples (those needed during every day life). Spending did manage to grow despite the harsh conditions by 5.1% last year, although it is slowing this year and could turn negative.

From TakingTheStreet:
Mastercard offered some useful insight into the domestic economy as well. The firm noted that consumers were spending more money on staples than discretionary items. Consumers are moving away from items like jewelry, restaurants, and home furnishings to instead purchase things like gasoline, groceries, and personal health care items. The company also noted a slowdown in spending in the U.S.; however, spending still did manage to grow at 5.1%. However, countries in Asia, Middle East, and Africa saw their spending increase an astounding 42%. Meanwhile, our neighbors in Latin America saw spending increase 28%. So, while things may be bad in the U.S., they are certainly booming abroad.

A new plan put in action by the President and Congress may help many homeowners struggling to make their payments. The plan calls for a reversal in tax policy that treats forgiven housing debt as taxable income on federal tax returns; allows homeowners who bought last year to deduct the amount of premiums they pay for PMI; and allows widowed spouses to exclude up to $500,000 in capital gains on the sale of a principal resident if the house is sold within two years of death. This is all great news for homeowners.

From AccountingWeb:
Amid daily headlines of a worsening housing crisis, debt-burdened homeowners are looking to two pieces of congressional action that could ease the pain. Monday's headlines stated that new home sales fell by 26 percent last year, which is the biggest drop since 1963, the U.S. Department of Commerce says. And last week's headlines said sales of previously owned single-family homes took a dive - the biggest annual drop in 25 years. Meanwhile, about a quarter of all subprime mortgages are in default. As more and more homeowners face the very real prospect of foreclosures, Congress last month passed the Mortgage Forgiveness Debt Relief Act. Also, Congressional Democrats say an economic stimulus package - centered on $100 billion in tax credits for about 117 million families - is headed quickly for a vote. They aim to get the package to President Bush by Feb. 15.

Many people make the mistake of only making minimum payments on their credit card debt. The problem is that you will never end up paying off your debt because you'll simply be paying back the interest only part while leaving the principal untouched. The key to getting out of debt is paying down as much of the principal as possible so that you can stop making payments sooner. Unfortunately, many people now are doing just the opposite and getting themselves into more trouble.

From LATimes:
Easy credit is great. Except when it's too easy. Millions of people are now in danger of losing their homes as a result of the meltdown in the sub-prime mortgage market. But millions more face the prospect of financial ruin because of an even more ubiquitous problem: the danger of making only minimum payments on monthly credit card bills. "You're not even denting your debt at all," said Schimeck, a Detroit resident. "All you're doing is keeping your credit card company happy so you can keep your account."

The global credit crunch that has already affected many people as lending standards tighten could be set to get worse if the economic downturn in the West continues, according to the IMF. Writedowns are continuing to affect many institutions and there is fear that the may continue to cause problems in the future. Any serious increases in the credit crunch could pour into the consumer credit and other sectors.

From Forbes:

The global credit crunch, already felt by financial institutions could continue to worsen if the economic downturn in the United States or elsewhere deepens, the IMF reported today. 'Evidence from lending surveys already shows some tightening of lending standards,' the IMF said in an update to its Global Financial Stability Report. It added that this crisis is being felt not only in the US, but also in Europe. 'While other regions' financial institutions appear to have less exposure, subprime related writedowns are still possible,' the report said.

American Express announced an increase in its loss reserves for bad consumer debt again this quarter as consumers are expected to continue defaulting on credit cards after troubles in the mortgage markets, higher energy costs, and higher food bills. Meanwhile, many are expecting the housing market to continue stalling until 2010 when the resets start to slow.

From BBC News:

American Express has posted a 10% drop in profits for the three months to December after it set aside extra capital to cover bad credit card loans. The US credit card firm said net income was $831m (£418.7m), down from $922m a year earlier. It attributed the decline to an after tax charge of $274m to boost revenue for credit card-related losses. This reflected huge defaults by American Express customers suffering from higher mortgage repayments and higher energy and food bills, analysts said.

Those with credit problems may find now as the best time to approach credit card companies in order to get their rates lowered, fees waived, and other assitance offered. Credit card companies are desperate to keep their customers these days as they can ill afford to lose them as an increasing number of clients are defaulting on their credit cards or declaring bankruptcy. So, it may be a good time to give you credit card company a call if you are experiencing problems!

From TheStreet.com:

"Before the subprime lending crisis, the banks didn't have to bow and scrape for your business, but now they desperately need you," says Robert D. Manning, author of the book Credit Card Nation. "If you have a substantial debt load, they don't want to lose you" because someone with a big debt load is often profitable for the banks.

In other words, when you're facing an impossible credit card payment, you might have more bargaining power now on how to avoid missing it. In any event, you have reason to fight. Scott Bilker, the founder of DebtSmart.com, says your lender might raise your rate to as much as 32% if you miss a payment. If you were regularly paying off $140 per month on $5,000 of credit card debt at an original 10% rate that got jacked up to 32%, you could end up owing an extra $10,220 as a result.

The numbers speak for themselves - the housing market experienced one of the largest crashes in its history last year and things do not look any better for this year. The reason for this is simple economics: An increasing number of mortgages are experiencing an interest rate reset to a higher level due to an ARM with a teaser rate; higher interest rates will lead to more expensive mortgages and late payments; more late payments will lead to more foreclosures; more foreclosures will lead to more houses on the market (increase in supply); and more houses on the market means lower valuations for the housing market; and finally, a declining market means buyers are afraid to put in money and buy a house leading to even lower prices (lower demand). It's a vicious cycle that may take awhile to end.

From New York Times:

Sales of new homes fell last year by 26 percent, the steepest drop since records began in 1963, the Commerce Department said on Monday.

Last week, the National Association of Realtors reported that sales of previously owned single-family homes, a large portion of the overall housing market, suffered their biggest annual drop in 25 years.

Prices have also fallen sharply. In December, the median price of a new home fell to $219,200, down 10 percent from December 2006.

For the year, the median price of new homes rose just 0.2 percent, to $246,900. But the median price of a previously owned single-family home fell for the first time in at least four decades, the National Association of Realtors said.

Housing prices have hit historic lows and many are predicting further falls into 2010 before things start turning around. So, is now the time to buy up real estate while it's cheap, or should you wait until things settle down a bit more? Well, a lot depends on the person. If you have the financing available to purchase some investment properties, then it may not be a bad time to start getting into the market. It is most definitely a buyer's market out there right now as people continue to struggle selling homes. Those in a position to make payments and have a downpayment ready may want to take the leap while the market is at a low.

From CNN Money:
Is it a good idea to buy real estate during a recession? - jordanfan954

It's not about the economy's health. It's your personal wealth. If you're in a position to make the payments and you have a down payment, start shopping. There are bargains to be had. Housing prices have fallen dramatically in some places. And many economists say that prices will fall even more. Merrill Lynch, for example, says this year home prices will fall 15 percent and 10 percent in 2009. So, it is a good time to start the process of home buying. 30 year fixed rates are at 2 and a half year lows and it certainly is a buyers market. Now is the time to get the best credit score that you can - investigate markets you're interested in and start squirreling away your down payment.

The Federal Reserve has just cut rates in an emergency meeting and more cuts are expected down the road as they tried to stave off a recession. So, is now the right time for you to refinance your mortgage? Well, lending standards have tightened substantially since the last time you probably got your mortgage. It is more difficult for those with poor credit to get an attractive refi offer. Today, you'll need 20 percent equity in your home and a credit score of 760 to even be considered! In short, those who have adjustable rate mortgages facing a higher reset may want to consider refinancing into a fixed low interest rate loan now if they have good credit - the time is right!

From CNN Money:
With the recent Federal interest rate cuts, is this a good time to refinance my home loan? What things should I take into consideration prior to refinancing i.e. credit score? - Ricardo, Florida

The bottom line is: if you have good credit, you'll be a winner. Falling mortgage rates are great for homeowners looking to refinance. This is especially true if you face an adjustable rate mortgage reset. But lenders are getting stricter. Today you'll need 20 percent equity in your home and a credit score of about 760 depending on the loan you get, to even be considered for a refinance. One mortgage broker we talked to said that in the past 8 out of 10 people who walked through the door were able to refi. Today, that number is more like 3 out of 10. So, if you don't have great credit, you want to focus on paying off high-interest debt, mailing in your payments on time and don't apply for any other credit in the meantime. Keep in mind, refinancing isn't free. It can cost 1-2 percent of the value of the loan.

Generous lending standards have been to blame for much of the problems in today's markets. Borrowers took on more money than they could afford to pay back while lenders were eager to issue more money in order to boost their own profits. And since they securitized these loans, they didn't care how likely it was that loans were paid back. Now, we are seeing the reprecussions from all of these poor lending practices. Credit cards have been one of the largest problems with the average person between 18 and 24 carrying $6,000 in debt - that can be crippling for anyone.

From PRLog:
With present economic conditions limiting American salaries and overall debt at record highs, Gen Yers are facing even bigger budget deficits. “The buy now, pay later lifestyle that so many baby boomers have become accustomed to is slowly rubbing off on their children,” says Jessie Conners, former Apprentice and author of Nightmare Nation: Redefining the Pursuit of the American Dream. Since Gen Yers spend over $175.1 billion dollars per year, it’s no wonder that retailers and credit card companies are targeting them much more than they did in the past. “A recent survey by the NSW Office of Fair Trading found that people between the ages of eighteen and twenty-four have an average debt of over $3,000,” says Ms. Conners. “And for those who have credit cards, their debt is over $6,000.”

Many people are aware that the housing market isn't doing so well, but few realize that this was the first time that prices actually dropped since reliable records began in 1968. So, are the housing and stock market busts just a temporary correction or a long-term problem? Well, we have already seen a historic decline and many experts believe that there needs to be much more of a correction before supply fits with demand in a market with very tough consumer credit.

From The New York Times:
It was a notable year for the housing industry, and not in a good way. In 2007, the median price of an American single-family home fell for the first time in at least four decades, according to the National Association of Realtors, a trade group. The median price declined 1.8 percent to $217,800, the first annual decline since reliable records began in 1968. “It’s the first price decline in many, many years and possibly going back to the Great Depression,” said the group’s chief economist, Lawrence Yun.

The stock market has declined substantially, but there has never been a better time to invest. Many people tend to buy when the stock market is red hot and sell when blood is on the streets, which goes against the "buy low, sell high" mentality that every great investor should embrace. The news has portrayed this as the worst meltdown in the stock market and economy ever, but in reality this sort of thing happens every decade or so. Long-term Capital Management nearly caused the collapse of the stock market in the 90s, for example. The key is just riding out the bumps and focusing on the long-term - whether it be in US stock markets or abroad.

From CNN Money:
The market is now down about 10 percent for the year and more than 15 percent from its high in October of last year. Sensationalistic headlines read something like "worst start ever for the stock market," and "as January goes, so goes the year." Such anxiety-inducing hype makes it virtually impossible for us to ignore the doom and gloom and just stay the course, but that's exactly what you should do.

Those looking to get in on the benefits of a Roth IRA still have time to get one for 2007 as long as they act before the April 15th tax deadline. Setting up a Roth IRA before this deadline can also enable you to contribute the full amount for 2008 instead of having to wait until later. This is especially a great move for those just getting started as a little bit now can definitely add up in the future.

From CNN Money:
... You can still stash up to $4,000 ($5,000 if you're 50 or older) in an IRA and have the contribution count toward the 2007 tax year, as long as you do so by the April 15th tax filing deadline. Just be sure that you make it clear to the brokerage firm, mutual fund company or bank you're dealing with that the contribution is for the 2007 tax year. As long as you do that, you'll retain the option of also making a contribution for this tax year, which, by the way, can be even larger, since the ceiling for IRA contributions for the 2008 tax year is $5,000, plus an extra $1,000 catch-up contribution for anyone 50 or older.

The Fed's actions today were widely expected and should have at least some postive effects for consumers, despite being unlikely to stave off a U.S. recession. Consumers will find lower mortgage rates, car loans, and credit card interest rates; however, savings accounts will earn much less as the move is designed to encourage consumers to spend or invest their savings. The emergency rate cut comes after a massive drop in the world stock markets ahead of a widely expected U.S. recession. Consumers may also find themselves with more money with an anticipated tax refund...

From US News:
Consumers aren't directly affected by today's Federal Reserve cuts in short-term interest rates, but they could be soon, as banks respond to the opportunity to borrow money more cheaply.

Mortgages: Consumers with good credit and money for a down payment are likely to find lower mortgage rates. "It will be cheaper to borrow money if you can get the loans at all," says David Wyss, chief economist at Standard & Poor's, noting that banks have grown more careful about lending money to risky consumers. "If you have bad credit, or if you're trying to buy with nothing down, as many have been doing over the last few years, it's a lot harder," he adds.

Car loans: Car loans also tend to respond quickly to changes in the prime rate, says Wyss, so those in the market for a car could find it cheaper to borrow money.

Credit card debt: Many cards come with fixed interest rates, which are unlikely to be affected by the Fed's decision, and even those with variable rates are unlikely to see changes anytime soon. "Credit card rates move very sluggishly," Wyss says.Savings: Interest rates on savings accounts, treasury bills, and municipal bonds tend to move together, so those who are storing money in savings accounts, certificates of deposit, or money market funds will most likely see their money earn less. "That is part of the Fed's planning. They want people spending (or investing), not saving," Levenson says. "That's what low interest rates do."

Savings: Interest rates on savings accounts, treasury bills, and municipal bonds tend to move together, so those who are storing money in savings accounts, certificates of deposit, or money market funds will most likely see their money earn less. "That is part of the Fed's planning. They want people spending (or investing), not saving," Levenson says. "That's what low interest rates do."

Equity markets around the world took a huge hit yesteday while the U.S. stock market enjoyed a holiday. Markets in Europe, Asia and even Latin America experienced massive declines as fears of a U.S. recession gained even more traction. The Fed agreed to cut rates once again, but many believe that it may no longer be enough to stave off what could become one of the toughest recessions in recent times. The U.S. stock market, which opened today, found itself able to hold off on the massive declines predicted by the futures market on Monday, but losses still came in at over 100 points. It appears like a recession is more likely now than ever before...

From SperoForum.com:
On Monday, fears of a US recession spilled over into Asian markets sending stocks tumbling. Indexes were hammered across the board in what turned out to be the worst day of trading since 2001. In India, the Bombay Sensitive Index plunged 1408 points, to 17,605. In China, the Shanghai Composite dropped 266 points (or 5.5%) to 23,818, while in Japan, the Nikkei fell 535 points, to 13,325 points. The bloodletting stretched across the continent and into Europe where shares nosedived by more than 4% by mid-morning “putting them on track for their biggest one-day fall in more than four and a half years.”

The President's new economic stimulus package is something that has to be approved for the simple reason that nobody wants to oppose it. Would you vote for the guy who decided against giving you free money? The currently planned $800 cash giveaway would provided citizens with money, but it's not all that likely that they will go and spend it at the mall and stimulate the economy. Many American's are cash poor these days and would likely put the money towards holding off creditors for another day. All that does it keep them alive for a few more weeks... What America really needs is economic change that would instill confidence in our economy and prevent any future busts like the one we've seen recently and so often in the past.

From AxisOfLogic:
The new word of the week is "economic stimulus package." Everyone is for it.

The President wants it if only because he knows a worsening economic crisis will leave his Administration in deep doo-doo, the way it did his dads' back in '92. Ben Bernanke, chairman of the Federal Reserve, is all for it if only because all of his rate cuts and "injections" of money into the financial system have not turned the US economy around.

He told Congress Thursday: "put money into the hands of households and firms that would spend it in the near term." This is likely to take the form of tax rebates and direct assistance.

And all the candidates-well most of them---want it too. Or at least they want something upbeat that will stimulate voters. John McCain lost Michigan, it is said, because he was too negative. Mitt Romney won because he promised to wave a magic wand, repeal Globalization and make Detroit what it one was.

Dream on.

Do you need more time to deal with your mortgage problems? Try filing for Chapter 13 bankruptcy and you could buy yourself a few more months - at least that's the strategy that people are now using in Las Vegas. Bankruptcies have hit new highs, particularly in Nevada, as the housing market has crashed leaving many out in the cold. Those seeking bankruptcy protection for their housing woes may also benefit from future laws aimed at empowering bankruptcy attornies with the ability to reduce the amount owed on mortgages - similar powers to what they can now do with unsecured debt...

From The New York Times:
John Rao, a bankruptcy specialist and lawyer with the National Consumer Law Center in Boston, said he saw a spike six months ago in Chapter 13 filings because of consumers’ mortgage problems.

Professor Lawless, a bankruptcy specialist, also saw a connection between foreclosures and Chapter 13 filings. “The new law has contributed to a higher percentage of Chapter 13s, but the mortgage crisis undoubtedly plays a role,” he said. “Distressed homeowners traditionally file Chapter 13 to save their homes.”

In Las Vegas, Judge Bruce A. Markell of United States Bankruptcy Court has seen a larger percentage of Chapter 13s lately. But an increasing number are “placeholder” filings by consumers who have no possibility of affording their mortgages’ resetting interest rates, he said.

Unless a creditor is very diligent, a Chapter 13 filing stays a foreclosure for two or three months, Judge Markell explained: “The placeholder filing buys you time to time to maneuver, to find another location.”

The President has called for another economic stimulus package in order to assist in helping the economy get back on its feet. The problem is that we are here because consumers and lenders were irresponsible and putting more money in their hands will not necessarily solve the problem. In fact, it may compound it. Sure, more money may lead to more consumers spending money at retailers but it is likely that they will leverage this money even more in order to get themselves into more trouble and debt. In the end, this would likely be a short-term solution to a long-term problem that seems to happen every 15 years or so in our market.

From the New York Times:
President Bush called on Friday for about $145 billion worth of tax rebates for American families and incentives for businesses to provide “a shot in the arm to keep a fundamentally strong economy healthy” and avert a slide into recession. The president said the package “must be big enough to make a difference” in an economy as large as that of the United States, meaning it should be worth about 1 percent of the gross domestic product, putting it at $140 billion to $150 billion, Treasury Secretary Henry M. Paulson Jr. said later.

Many people are claiming that the worst may be over after this next wave of poor earnings; the VIX has reached historical highs, writedowns have peaked, consumer confidence hit a low, and many people are calling for capitulation. However, many others insist that there will only be more writedowns to come as the credit crisis spreads into commercial real estate and consumer credit. We have already seen substantial writedowns from JPMorgan and others in consumer credit cards while many large commerical projects are being sold off or put on hold due to the lack of funds. This thing could last a lot longer...

From Forbes:
Banks have written down more than $100 billion since the summer. Yikes. Now the bad news: There are still billions worth of potentially toxic securities sitting on the books. The additional $1.3 billion write-down disclosed by JPMorgan on Wednesday was just the latest loss big banks have reported in the fourth quarter. Merrill Lynch (nyse: MER - news - people ) is expected to report a sizeable write-down when it reveals fourth-quarter numbers on Thursday, by some estimates in the neighborhood of $15 billion. Bank of America (nyse: BAC - news - people ), Wachovia (nyse: WB - news - people ) and other big lenders report next week and are also expected to write down billions of securities holdings.

Student debt is soaring out of control as tuition costs rise and assistance continues to fall. The disturbing trend is forcing many students out of school and forcing others into a lifetime of debt repayment. Middle-income students are often the ones left out to dry in the process as the low-income students often receive Federal aid and high-income students don't need anything. A new plan in New York calls for middle-income students' families to contribute no more than 10% of their annual earnings to tuition costs. Right now, many families are paying far more than they can afford to put their children through school. Perhaps other states should consider similar plans before we start sending a whole new generator of debtors into the workforce.

From Zwire.com:
Believing that middle-income students too often get the shaft when it comes to financial aid, New York State Senator Ken LaValle (R-Selden) has unveiled an initiative that would throw a lifeline to families facing certain debt from college costs, but with the proviso that students who benefit remain in New York State for five years. Under the legislation, those families whose total net taxable income falls between $60,000 and $150,000 per year would not have to contribute more than 10% of their annual earnings to tuition costs and other related fees, LaValle said, but not before they have exhausted their possibilities for obtaining money from other state and federal aid programs, such as Federal Pell Grants and the NYS Tuition Assistance Program.

The European Union has adopted a series of new rules aimed at giving consumers more and better information that makes it easier for them to make informed decisions about consumer credit and loans. The new rules would make the total cost of the loan clear and establish a standard for calculating interest rates. Moreover, consumers would have to be informed of the reasons why a loan is refused. These rules are a great start for the EU and the US should follow their lead and adopt several of their own rules designed to increase transparency for consumers.

From ChinaView.CN:
The European Parliament(EP) Wednesday approved new rules governing consumer credit across the 27-nation European Union (EU). In welcoming the approval, MEP Malcolm Harbour, who serves as a spokesman on the internal market for a political group in the parliament, said the new rules "will give consumers more and better information, making it easier for them to take informed decisions." Under the new rules, the total cost of loans will be clear and there will be a standard method of calculating interest rates. Consumers will also have to be informed of the reasons if a loan is refused.

JPMorgan Chase has become the latest bank to fall victim to consumers unable to pay their credit card bills. The bank announced that its earnings are down to $3 billion from $3.9 billion after a $1.3 billion subprime-related writedown. The move follows Citigroup's huge $18.1 billion writedown after higher than expected credit costs due to increasing defaults on consumer loans and credit cards. And this may only be the surface of the problem according to many analysts...

From NBC:
JPMorgan Chase became the latest bank to disclose the rising toll from the US mortgage crisis and increasing consumer loan losses, saying fourth quarter earnings sank 21 per cent following a $1.3bn subprime-related writedown. The subprime damage at JPMorgan, while significantly less than at rival Citigroup, still drove earnings down to $3bn, or 86 cents per share, from $3.9bn, or $1.09 per share, last year. Citi disclosed an $18.1bn writedown on Tuesday and said it lost nearly $10bn in the fourth quarter. It reported higher than expected credit costs do to increasing defaults on consumer loans.

A new mortgage act gives a tremendous tax break for homeowners. Now, homeowners can refinance their mortgages and pay no taxes on any debt foregiveness that they receive. Many of the beneficiaries of this new law already avoid taxes by qualifying as a short sale, but the law will still help a select few save money and is worth researching. Consult your local tax professional for more information on whether or not you can qualify!

From IndiaPost:
Homeowners found three attractive tax breaks among their holiday presents, thanks to the federal Mortgage Forgiveness Debt Relief Act of 2007, which was enacted in December. Forgiven debt may be free from income tax. The first tax break concerns forgiveness of debt, which occurs when a lender forgoes repayment of principal and/or interest the borrower owes. Typically, discharged debt is considered ordinary income to the borrower for income tax purposes. The new law allows taxpayers to exclude this amount and thus escape the tax liability. "When you're worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive," President Bush said in his remarks upon signing the law.

The government is again overhauling taxes and this time there is a change that will greatly benefit those in lower tax brackets - they won't have to pay any capital gains tax! Obviously, the largest benefactors are retirees that will be able to cash their investments out for free if they fall within these tax brackets. Those with relatives in low tax brackets can also gift investments to them to sell tax-free. The best summary of this rule online right now is over at the CPA Journal for all of those interested in this great new opportunity.

From PFBlog:
Yes, for the next three years (2008 to 2010), taxpayers in those two tax brackets [10% and 15%] won't have to pay anything for long-term capital gains and qualified dividends. The tax rate on such income for those of higher income, will stay at the prevailing rate of 15%. For short-term capital gains and disqualified dividends, all taxpayers still have to pay tax at the marginal tax rate just like other ordinary income.

It is becoming increasingly apparent the the U.S. economy may be in trouble unless some major changes are made. Consumers are taking on more debt than ever before in order to fund their spending habits while lenders are being bailed out and acquired by foreign companies. Meanwhile, a mortgage crisis has broken the back of the largest source of funds for most Americans. When consumer debt rises to $15.4 billion in the same month that Citigroup is bailed out by foreigners for $7.5 billion then we know we are in for some problems - especially when Consumer Confidence hit an all-time low...

From SeekingAlpha:
It took a few years, but some key factors are finally exposing the dangerous delusion of the credit-fed lifestyle and how it affects the U.S. economic outlook.

• Debt is up, and consumer confidence is down
• Sovereign-wealth funds are coming to the rescue of drowning U.S. lenders
• Two wars and broken social services mean the national balance sheet will get much uglier
  

The sub-prime credit disaster and subsequent brake-slam of the international finance industry are tossing momentum back and forth from the highest levels of the economy down to the lowest-paid workers. Unemployment is also up, and you can bet that driving around to look for a job gets a lot more urgent when gasoline costs upwards of three bucks a gallon.

U.S. consumers managed to set several records this year: More bankruptcies than ever before, more foreclosures than ever before, and ironically more online spending than ever before. This past holiday season resulted in $29.2 billion in spending online alone as credit cards offer consumers more and more credit. Brick-and-mortar stores showed sluggish growth, however, as more and more business went online and consumers felt the credit crunch. So, why weren't online stores affect? Perhaps online sales - that don't involve an actual cash transaction - make it easier to spend money... Either way, it is important for consumers to keep their online spending in check in 2008!

From Fibre2Fashion:
comScore Inc released its final update of holiday season e-commerce spending for the 2007 holiday season (November 1 – December 31). $29.2 billion was spent online during the holiday season, marking a 19-percent gain versus the same period last year. "This year’s online holiday shopping season has concluded with a record $29 billion in spending, a 19-percent gain versus year ago," said comScore Chairman Gian Fulgoni.

Bankruptcies are expected to be up sharply again during the beginning of this year if history repeats itself. It is increasingly important for consumers to realize the ramifications of bankruptcy before going through with the process. Bankruptcy remains on your credit report for ten years and can make it extremely difficult to obtain future loans. As a result, it is important to explore other alternatives such as debt settlement or credit counseling as a way to get out of debt while avoiding bankruptcy. Debt settlement is a process that can reduce what you owe by up to 40% while helping you establish a payment plan. Meanwhile, credit counceling is a process that entails putting together a budget and paying off what you owe over time. Either program is often a better option than bankruptcy that should be explored!

From Journal Gazette:
Last year, post-holiday bankruptcy filings spiked in the first quarter to more than 185,000 – a steep increase over the year before. If the general rule about history repeating itself bears out, we should expect another surge in the beginning of 2008.

A new government tax break for those with mortgage insurance means you might be eligible for a rather sizeable tax break! Those paying for mortgage insurance are now able to write off the full amount if they make under $100,000 or part of the amount if they make over $109,000. Unfortunately, this only applies to mortgages that have originated between 2007 and 2010, but it still provides incentive for people to take on mortgage insurance. A great move by the government who wants to reduce the risk of mortgage securities in order to help the market recover!

From BusinessWeek:
Homeowners with a new mortgage that is covered by insurance can claim a tax break on the insurance this year. The break, called the qualified mortgage insurance deduction, lets taxpayers with an adjusted gross income of less than $100,000 write off the full cost of mortgage insurance. Folks who earn less than $109,000 can take a write-off for part of it. To qualify, the mortgage must have originated between 2007 and 2010. The deduction can be taken for insurance on a principal residence or a second home.

It now looks like there will be even more trouble ahead for consumers as additional credit card companies pile on loan loss provisions for an increasing number of deliquences. American Express led the pack last week but now at least two other credit card companies have added their names to the list - most recently Capital One. The problems are affecting all people too: Capital One's modest incomes to Amex's affluent incomes. And we have also already begun to see the effects of the crunch during the December shopping season...

From Forbes:
What's in your wallet? If you're a Capital One credit-card customer, it might be plastic but not cash. The credit-card company said Thursday that its 2007 earnings will fall short of previous expectations due to loan delinquencies and additions to its reserves during the fourth quarter. The company said it is reserving $1.9 billion for loan losses in the fourth quarter, approximately $1.3 billion of which are charge-offs.

Countrywide reported a record number of foreclosures in December that marks a continuation of the subprime mortgage crisis that plagues the US economy. Now, many analysts are speculating that the mortgage giant may be forced into bankruptcy if things get any worse. This could spell bad news for consumers who will find it more difficult than ever to obtain new home loans as liquidity for mortgage securities declines substantially and lending standards increase due to more government oversight.

From Reuters:
Countrywide Financial Corp, the largest U.S. mortgage lender, said on Wednesday that foreclosures and late payments rose in December to the highest on record, sending its shares tumbling for a second day to their lowest in nearly 13 years. Analysts attributed Wednesday's drop to deteriorating credit quality reflected in Countrywide's monthly operating report, and renewed concern the lender might not survive the housing crunch and could seek bankruptcy protection. On Tuesday, Countrywide rejected bankruptcy rumors.

Recent earnings numbers put out by credit card companies are quickly confirming what many analysts have already seen coming: American consumers are quickly finding themselves in a pile of debt that may be extremely difficult to escape. Subprime mortgage defaults combined with a consumer credit crunch have led to a substantial increase in defaults. Capital One is the first such credit card issuer to report the decline in credit quality as it raised its loan loss reserves. It appears as if credit card companies may have been just as careless when loaning to individuals as the mortgage sector.

From MarketWatch:
Credit-card shares were among the top decliners in the financial sector Thursday after Capital One Financial Corp. lowered its earnings outlook and raised its loan loss reserves, with increasing clarity that the credit crisis sparked by careless home lending has spread to the consumer sector.

American consumers continue to take on more debt despite major problems in the credit and mortgage markets. The Federal Reserve released a report showing credit card balances increasing at the fastest pace in years with the biggest gain in outstanding debt since August - a 7.5% annual rate! Perhaps consumers should take a hint from corporations who have taken a conservative approach and kept as much cash as possible on their books. It's time for consumers to get the help they need and start reducing their debt and increasing their savings.

From MarketWatch:
U.S. consumers took on more debt in November, increasing their credit-card balances at the fourth fastest pace during the six-year expansion, the Federal Reserve reported Tuesday. Total seasonally adjusted consumer debt increased by $15.5 billion, or a 7.5% annual rate, in November to $2.51 trillion after a revised 1% rise in October, the Fed reported. It was the biggest gain in outstanding debt since August.

There has been a lot of speculation that Countrywide could go bankrupt amid the mortgage crisis and it has a lot of consumers wondering how it may affect them. The first thing that consumers' will notice is a much more difficult loan application process that involves much more strict lending guidelines. New government regulations are making it very difficult for subprime borrowers who do not have a huge income to justify a home mortgage payment. Home sales will also fall further as mortgage financing becomes even more rare. Fewer mortgages means fewer buyers, meaning more homes will stay on the market and prices will fall with increased supply. Combined, this only means more hurt for a company has exhausted many of its extraordinary financing options - maybe it will happen.

From FoxBusiness:
Countrywide Financial, the nation's largest mortgage lender, is on a collision course with bankruptcy, with potentially severe impacts on the ability of U.S. consumers to refinance their homes or get new mortgages, according to Weiss Research analysts Mike Larson.

The IRS is finally considering at refund loans and whether they are being used by tax cheats in order to game the system. Many middle-class Americans are taking advantage of the system by falsely identifying their income in order to qualify. These loans are traditionally available to the working poor in order to help them attain temporary assistance but now many others are taking advantage of the program as a "free" loan opportunity. Clearly, this is a practice that has to stop and the IRS is definitely taking the right steps...

From Baltimore Sun:
Last week, the Internal Revenue Service said for the first time it will be looking at refund loans and whether they encourage cheating among tax preparers, as some critics claim. Sounds hopeful, though at this point the agency only is seeking public comment ... A refund loan is an advance on your tax refund - minus fees. The loan is repaid when the IRS deposits your refund in the bank ... Millions of tax filers likely will take out refund loans this tax season. Don't be one of them.

It appears as if the credit crisis is not only limited to people defaulting on home loans, it's now affecting the rich as well. Many millionaire investors around the world have begun pulling out a significant amount of money in order to reduce risk. Unfortunately, this is causing a lot of pain for money managers and those who manage cash for the rich. So much money being pulled out is also causing damage to the markets themselves, which continue to feel the effects of a lack of liquidity.

From The Guardian:
As the credit crisis drags on, not even the world's millionaire investors are immune from its effects, and the private banks which manage their money could be next to feel the pain. Rich investors are reducing leverage on their portfolios, robbing wealth managers of a lucrative income stream just as difficult financial markets cast a shadow over their results. As the credit crisis eats away the value of their assets, millionaires are paying back cash they borrowed for investment purposes to reduce risk, private bankers say.

Credit card companeis have been known to institute seemingly random rate increases for some time now and the practice was finally beginning to be brought to attention during 2006. However, the subprime meltdown along with a host of other problems buried it in the newsmedia. Perhaps it's time to bring this back to the public attention so that the Senate takes the time to continue their inquisition into this unfair practice...

From FWDailyNews:
In the midst of all the reports of home foreclosures and credit failures in 2007, an investigation that could affect anyone who has a credit card slipped under the radar. Spearheaded by Michigan Senator Carl Levin, the U.S. Senate Permanent Subcommittee on Investigations Hearing: “Credit Card Practices: Unfair Interest Rate Increases” met twice this past year, in March and December. While the senator doesn’t have another hearing scheduled soon, the investigation isn’t over, an office aide in Washington told me Thursday. What this is about is what Levin describes as arbitrary decisions by credit card companies to increase the rates on consumers’ cards, on what often seems like an inexplicable whim. The problem is, you agree to this whim when you get your credit card (read the fine print in your cardholder information packet).

Many residents of the UK are set to overpay on their credit cards and the same holds for many Americans. Credit card companies offer residents in both countries many opportunities to loan money with 0% interest for a certain time, yet many people are set to continue to make minimum payments and accrue interest. If you are one of these people, it is important to check into low interest credit cards at websites like CreditCards.com: http://www.creditcards.com/balance-transfer.php.

From TimesOnline:
NEARLY 7m people will pay over the odds for credit card debts they built up over Christmas, in the latest worrying sign for the Britain’s beleaguered economy. Research by Moneyexpert.com, a financial website, found that 6.6m people are not planning to switch to a cheaper credit card deal, despite the fact that they are paying an average 16.8 per cent interest, compared with 0 per cent on the best transfer deals.

Free balance are a great way to reduce your credit card payments by lowering your interest rates and a record number of credit card users are expected to make them during the first three months of 2008. Keep in mind, however, that balance transfers will still cost you money. The best ones will charge around 2.5% in order to transfer your balance - but this is still far better than paying the higher interest rates! Also, remember that the 0% interest rate is typically for a promotionally period only until it resets to a higher rate - so it is very important to get the card paid off during this time period.

From Motely Fool:
If you splashed out over the Christmas period, you could find yourself saddled with a large debt on your plastic. The New Year has arrived so now is the perfect time to get your finances back into shape which means switching to a 0% balance transfer credit card. That way you can put a temporary stop on your interest while you get to grips with your debt. Voila!

The evidence is piling up that American consumers are in deep trouble with credit. This latest report showed that deliquences across all consumers loans are at their highest rate since 2001 when we were in a recession. The highest number of deliquencies were present in housing and auto loans as home equity lines of credit have dried up; however, we are likely to see a continued rise in credit card problems despite more lenient financing terms.

From Mercury News:
Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home equity loans, climbed in the summer to their highest point since the country's last recession in 2001. The American Bankers Association reported Thursday that the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001, when the economy was suffering through a recession.

No, it's not a scam letter you received in the mail! Millions of Visa and Mastercard users are eligible for a cash refund of illegal transaction fees that they paid during overseas transaction. The original lawsuit was filed because these fees were largely seen as hidden from consumers and therefore illegally imposed. So, how much do you get? Consumers who spent a short time overseas are eligible to receive $25 with minimal paperwork. Those that spent longer than a week or spent more than $2,500 are eligible for a larger refund if they fill out the paperwork for it. You can find more information and a link to the forms here.

From USNews:
Tens of millions of credit card users received letters in the mail over the past couple of months informing them that they may be eligible for a refund of the currency conversion fees paid during overseas transactions. The settlement was the result of a lawsuit alleging that Visa, MasterCard, and Diners Club did not disclose the 1 to 3 percent fees they charged on foreign transactions.

Many consumers who overextended themselves during Christmas may unload their debts onto the public by declaring bankruptcy. Sadly, many people continue to ignore the warning signs of debt and push their bills off during the holiday season. These bills will begin to surface again during the first three months of the year when many of them will become due. Unfortunately, many of these people will face insolvency as their only way out of debt. This is particlarly true given the issues faced in the credit and housing markets, which has substantially limited consumers' ability to repay their debts.

From Reuters:
Excessive spending over Christmas will fuel personal bankruptcies in the first three months of the year, a report says. Chartered accountant Grant Thornton predicts that 28,000 people will become insolvent in the first quarter of 2008, a third of whom are expected to file for bankruptcy as a direct result of debt racked up over the festive period.

Most Americans count their house as their single largest asset as it is used to back loans and build equity. However, a new trend in so-called "reverse mortgages" may be changing that fact. Now, mortgage companies are targeting seniors who are willing to part with their house in exchange for a monthly stipend (reverse mortgage). Under this arrangement, a senior is able to slowly sell their house over time until they die, at which time the house becomes property of the bank. The problem with this is that these mortgage companies are not only taking away a large asset (that is usually passed down to future generations) but also charge high fees for the loan that can result in homeowners receiving substantially less than they deserve.

From Kansas.com:
As living expenses--particularly health care costs -- rise while incomes remain stagnant, seniors are increasingly finding reverse mortgages a way to remain in their homes and make ends meet. There are downsides, including the costs--which can be as high as $8,000 to $9,000 for a $150,000 loan, for example--and the fact that consumers essentially give up what for most people is their biggest asset.

It appears that the consumer credit crisis that we have been predicting for some time is now finally beginning to hit the market. The housing boom has seen many consumers utilize their home equity lines of credit in order to pay off unsecured credit card debts. Now that that resource has dried up, many Americans are beginning to default on their credit cards. This has caused strain on banks that are now raising their interest rates in order to try and offset the higher defaults. Unfortunately, this will only compound the problem by making it even more difficult for Americans to get out of debt which will force more into default. In the end, someone's going to take the hit - whether it be consumer's with debt or U.S. banks (which are already beaten down) with debt when consumers declare bankruptcy.

From MarketWatch:
Faced with mounting account delinquencies, major U.S. banks are penalizing credit-card customers late on payments by hiking their accounts to maximum default interest rates of 30% and more -- even those with good credit records ... The decline in Americans' home equity due to slumping real-estate values is limiting cardholders' ability to pay off higher-interest credit-card debt with home-equity loans. As that resource becomes unavailable to more borrowers, experts say, lenders are taking aggressive measures to limit their exposure on unsecured credit-card debt.