/PRNewswire/ -- Georgia consumers are not optimistic about the state's economic condition, with just 12 percent of respondents to the latest poll from Georgia Credit Union Affiliates (GCUA) saying they believe the economy has improved in the past year. The rest characterized Georgia's economic situation as either about the same or getting worse than last year, sentiments which could have a material impact on consumer saving and spending throughout the state.
The quarterly Georgia Credit Unions' "Paying Attention" report indicates that, while consumers are working to build a buffer of savings by cutting back on expenses and delaying large purchases, they are still unprepared to deal with any further financial setbacks. The report compiled recent poll responses from more than 4,000 credit union members and aggregated data from credit unions statewide.
"As national statistics start to show an increase in consumer confidence, Georgia credit union members are still wary about their own personal financial health," said Mike Mercer, president and CEO of GCUA. "If the economy strengthens, consumers could become more optimistic. But, in the meantime, we expect to see cautious plans for spending and especially borrowing. In fact, loan demand at Georgia credit unions has been very soft."
Consumer Poll
The full report, available at www.georgiacreditunions.org, includes poll results measuring Georgia consumers' current economic mood, as well as savings and spending trends. Among the report's findings:
* Only 12 percent of poll respondents believe the economy is improving compared to a year ago, with 40 percent saying they think it's getting worse.
* More than 30 percent (32.9 percent) of respondents said they experienced changes in their employment situation during the recession, ranging from layoffs to pay cuts to having to take a second job.
* More than one-third of respondents (35.7 percent) said they had no reserve savings to cover essential expenses if they were to lose their job or other source of income. On the other hand, 18.9 percent said they had enough savings to cover more than one year without a source of income.
* Almost two-thirds of respondents (65.6 percent) said they have changed their personal savings habits over the past six months, including spending less or cutting expenses like eating out and taking trips.
* Compared to 2010, respondents appear even more wary about making large purchases. 63.3 percent said they do not plan to purchase any big-ticket items in 2011, compared to 52.1 percent who said they avoided large purchases last year.
* Half (50 percent) of respondents say they will pay for their large purchases with cash from savings.
Credit Union Data Show Continued Trend Toward Savings
In conjunction with the consumer poll, GCUA compiled savings and lending data from 39 credit unions from across the state that represents 91 percent of credit union assets and 83 percent of members in Georgia. The findings, outlined in the chart below, reflect a continuing trend toward savings, while figures for lending varied:
* Savings deposits rose at an annualized rate of 5.42 percent during 2010, just slightly less than the 6.24 percent rise in 2009. Checking account balances also grew by 13.12 percent in 2010.
* New vehicle loans continue to decline, with more consumers opting for used car loans: new vehicle loan balances fell by 10.42 percent in 2010, while used car loan balances increased by 7.16 percent, continuing a trend from 2009.
* First mortgage balances increased by 9.89 percent in 2010.
* The number of bankruptcy filings among members rose 12.47 percent in 2010 compared to 2009.
More information is available at www.georgiacreditunions.org or on facebook.com/creditYOUnion.
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Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts
Thursday, February 24, 2011
Tuesday, January 5, 2010
Double-Dip Recession Anyone? Forty Percent of People Now Say 'Yes'
/PRNewswire/ -- The Wealth Hazards Worry Index now indicates that the number of people who believe that the U.S. economy could enter another recession in 2010 now stands at 40 percent. Another 32 percent of survey respondents are unsure if a "double-dip" recession is on tap for 2010, while only 28 percent of people are confident that no recession will occur in 2010.
"The government stimulus and support programs in 2009 were instrumental in holding the economy together so that the recovery process could get underway, the fragility of the recovery is now center stage," says Thomas Hertog, editor at Wealth Hazards. Respondents to the Wealth Hazards Worry Index survey cited continuing concerns about the expiration of government stimulus and support programs and how this might impact their own financial health.
Specifically, people are anxious about the high rate of unemployment, rising interest rates, price inflation, more foreclosures, and flat wages or even wage deflation as employers bargain hunt for new employees. In summary, 40 percent of people expect another recession-like downturn and nearly one-third of people are not sure if another recession is waiting just around the corner.
"Many people remain vigilant as they wait and see if the other shoe is going to drop in 2010," said Hertog, "the fatigue factor has set in and consumers want to know that their jobs are safe, their home values will not fall another 10%, and that folks in government are not going to choke-off the recovery by letting support programs end before they fully stimulate the economy."
For example, the Federal Reserve program to buy mortgage-backed securities has kept 30-year mortgage rates at all time lows, but an exit from this program or a hasty retreat that is poorly timed, could result in another real estate downturn. The new $174 billion Jobs for Main Street Act stimulus bill appears to be facing an uphill battle in Congress as the Obama administration tries to provide support to a struggling job market recovery. The hope that "shovel-ready" infrastructure projects would ease unemployment in construction and materials was shared by many in early 2009, but now nearly one year later the actual improvement is more difficult to measure. Bottom line, consumers are not completely convinced that the recovery is fully underway and that their own lives and financial health is about to improve. "Our new book, 'Wealth Hazards - Surviving the Recovery,' discusses the areas of personal finance that are most critical to address and provides many insights and tips to avoid, manage, and recover from life's wealth hazards," says Hertog. Wealth hazards come in all shapes and sizes and very often in disguise. The most important areas to watch include: investing, saving, credit, retirement, insurance, taxes, health and your career.
-----
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"The government stimulus and support programs in 2009 were instrumental in holding the economy together so that the recovery process could get underway, the fragility of the recovery is now center stage," says Thomas Hertog, editor at Wealth Hazards. Respondents to the Wealth Hazards Worry Index survey cited continuing concerns about the expiration of government stimulus and support programs and how this might impact their own financial health.
Specifically, people are anxious about the high rate of unemployment, rising interest rates, price inflation, more foreclosures, and flat wages or even wage deflation as employers bargain hunt for new employees. In summary, 40 percent of people expect another recession-like downturn and nearly one-third of people are not sure if another recession is waiting just around the corner.
"Many people remain vigilant as they wait and see if the other shoe is going to drop in 2010," said Hertog, "the fatigue factor has set in and consumers want to know that their jobs are safe, their home values will not fall another 10%, and that folks in government are not going to choke-off the recovery by letting support programs end before they fully stimulate the economy."
For example, the Federal Reserve program to buy mortgage-backed securities has kept 30-year mortgage rates at all time lows, but an exit from this program or a hasty retreat that is poorly timed, could result in another real estate downturn. The new $174 billion Jobs for Main Street Act stimulus bill appears to be facing an uphill battle in Congress as the Obama administration tries to provide support to a struggling job market recovery. The hope that "shovel-ready" infrastructure projects would ease unemployment in construction and materials was shared by many in early 2009, but now nearly one year later the actual improvement is more difficult to measure. Bottom line, consumers are not completely convinced that the recovery is fully underway and that their own lives and financial health is about to improve. "Our new book, 'Wealth Hazards - Surviving the Recovery,' discusses the areas of personal finance that are most critical to address and provides many insights and tips to avoid, manage, and recover from life's wealth hazards," says Hertog. Wealth hazards come in all shapes and sizes and very often in disguise. The most important areas to watch include: investing, saving, credit, retirement, insurance, taxes, health and your career.
-----
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Monday, April 27, 2009
Price and Money: Wag the Dog?
/PRNewswire/ -- The following is a statement by Joon Yun, Director, Palo Alto Institute:
Decades ago, when everything and everyone from unions to cartels was blamed for inflation, Friedman rejected the conventional wisdom and posited on the basis of empirical data that money supply drives price levels. He argued that prices increased not due to price and wage increases, but because the federal government made the supply of money grow faster than the real economy created value. This groundbreaking theory, while highly controversial and almost revolutionary at the time, appeared to be vindicated by the "Great Inflation" of the 1970's, and has since become the core tenet of monetarism and modern policymaking. However, in a mark-to-market world, price may act insidiously to drive money supply and amplify boom-bust cycles.
Despite the copious amounts of money printed by the U.S. government through the fall of 2008, asset prices continued to fall precipitously. Relying on the assurance that Ben Bernanke would avert deflation by printing money, as indicated by Friedman's theory, investors betting on hyperinflation were caught leaning the wrong way. Few recognized that credit contraction caused by price declines would annihilate money in a mark-to-market world. The contraction of total money supply overpowered the printing presses of monetarism, and cataclysmic deflation ensued. The Fed has long downplayed the role of asset prices in monetary policy. Yet it is apparent that in a credit-based economy that appraises assets on a mark-to-market basis, asset price inflation creates money and asset price deflation destroys money.
Imagine a marginal transaction that raises the price of an asset - say a house sells in San Francisco for 10% more than it sold for a year earlier. All similar homes in that neighborhood get marked up. Credit institutions then willingly lend against these houses at their new market value - their mark-to-market prices. In this way, small increases in price create vast amounts of collateral, which in turn beget credit, liquidity, money velocity, and eventually total money. The net effect is that the appreciation of asset prices leads to an expansion of the total money supply.
As price increases lead to an increase in the amount of money available to bid on assets, such as our house in San Francisco, these perverse incentives promote further inflation in a "feed-forward" manner: anticipation of future price increases prompts higher bidding. The irony here is that as assets appreciate in price, they actually become more of a bargain, since these assets become scarcer relative to the money supply available to purchase them. This secondary effect is purely monetary and independent of the feed-forward effect of expectations regarding inflation. The potential explosiveness of the vicious cycle of per unit inflation and increase in total money supply is mitigated by human innovation that renders scarce assets more abundant through production i.e., more houses get built.
Conversely, as asset prices decline, the mark-to-market basis of the credit valuation precipitates a dramatic reduction of collateral, leading to a contraction of credit, liquidity, money velocity, and eventually total money. In our example, as houses sell for less all homes are assumed to be declining in value, banks are less willing to lend, and markets eventually freeze up as money is no longer available for buying homes. Price declines and consequent contraction of money creates a feedback loop. No matter how inexpensive they get, homes sold today aren't bargains if they're going to be cheaper tomorrow. Although the price tag of an asset might be lower, the decreased availability of money for bidding would also cause assets to become more expensive relative to the money used to buy them. Counterintuitively, as assets fall in price, they may become less of a bargain.
This phenomenon may help explain the seeming contradiction in purchasing behavior that people have pointed out during this recent deflation. The world seems to be on a half-off sale, yet few parties are behaving as if the deal is a bargain. Asset investors note that assets are falling in price, yet lament the paucity of money to support bids.
When multiple asset classes deflate simultaneously, the feed-forward effect of price declines on total money supply can be dramatic. When asset prices in emerging markets and U.S. equity markets joined the housing markets in decline, American policymakers followed Friedman's script and immediately began to increase money supply to combat the specter of deflation. Many investors similarly weaned on monetarist theory reflexively shorted the dollar and took long positions on commodities.
As these trends gained momentum, inflation lurked during the first half of 2008 due to rocketing commodity input prices. Notably, faith in monetarist policy amongst investors actualized the monetarist credo that an increase in money supply would cause inflation...for a while. Alas, commodity prices peaked in summer of 2008 and soon joined other asset classes in decline, and through the end of 2008 and the beginning of 2009, asset prices continued to fall precipitously in spite of the continued printing of money by the U.S. government.
A mark-to-cost model for asset appraisal, such as that seen for capital gains tax treatment, would substantially mitigate the insidious feed-forward effect of asset price movements on total money supply. In a cost-based appraisal system, only the house actually sold would be marked up in value; the other houses in the neighborhood would continue to be valued at their purchase prices until sold, and no money would be loaned against their "market value." However, since a mark-to-cost model would be difficult to implement - it would not accurately reflect long term trends, such as a house in San Francisco owned for over a hundred years with a cost way below the market average - a more moderate solution such as asset valuations based on historical trend lines may be more practical. Under this scenario, banks would use an appraisal rate based upon the historical appreciation of homes in the neighborhood, over some set number of years to value the home for lending purposes, rather than the market value at any given moment in time based only on the most recent sales.
This change would seem problematic for America - we are a debtor nation, both to ourselves and to other countries. Stabilizing total money supply at low levels of money velocity could leave the country with insufficient total money to pay off our debts. It would seem that the U.S. remains on an implicit path to print enough money to allow us to inflate our way out of the current crisis, and at some point this policy will create the illusion of success. Eventually, however, the issues discussed above will once again resurface. Price increases will beget the whole cycle of money creation again, initiating the next boom-bust cycle.
The risks involved in implementing a new model for pricing assets may be high, but the risk of ignoring the issue may be a lot higher.
By Joon Yun, Director, Palo Alto Institute - a think tank whose mission is the pursuit of truth through fundamental research.
-----
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Decades ago, when everything and everyone from unions to cartels was blamed for inflation, Friedman rejected the conventional wisdom and posited on the basis of empirical data that money supply drives price levels. He argued that prices increased not due to price and wage increases, but because the federal government made the supply of money grow faster than the real economy created value. This groundbreaking theory, while highly controversial and almost revolutionary at the time, appeared to be vindicated by the "Great Inflation" of the 1970's, and has since become the core tenet of monetarism and modern policymaking. However, in a mark-to-market world, price may act insidiously to drive money supply and amplify boom-bust cycles.
Despite the copious amounts of money printed by the U.S. government through the fall of 2008, asset prices continued to fall precipitously. Relying on the assurance that Ben Bernanke would avert deflation by printing money, as indicated by Friedman's theory, investors betting on hyperinflation were caught leaning the wrong way. Few recognized that credit contraction caused by price declines would annihilate money in a mark-to-market world. The contraction of total money supply overpowered the printing presses of monetarism, and cataclysmic deflation ensued. The Fed has long downplayed the role of asset prices in monetary policy. Yet it is apparent that in a credit-based economy that appraises assets on a mark-to-market basis, asset price inflation creates money and asset price deflation destroys money.
Imagine a marginal transaction that raises the price of an asset - say a house sells in San Francisco for 10% more than it sold for a year earlier. All similar homes in that neighborhood get marked up. Credit institutions then willingly lend against these houses at their new market value - their mark-to-market prices. In this way, small increases in price create vast amounts of collateral, which in turn beget credit, liquidity, money velocity, and eventually total money. The net effect is that the appreciation of asset prices leads to an expansion of the total money supply.
As price increases lead to an increase in the amount of money available to bid on assets, such as our house in San Francisco, these perverse incentives promote further inflation in a "feed-forward" manner: anticipation of future price increases prompts higher bidding. The irony here is that as assets appreciate in price, they actually become more of a bargain, since these assets become scarcer relative to the money supply available to purchase them. This secondary effect is purely monetary and independent of the feed-forward effect of expectations regarding inflation. The potential explosiveness of the vicious cycle of per unit inflation and increase in total money supply is mitigated by human innovation that renders scarce assets more abundant through production i.e., more houses get built.
Conversely, as asset prices decline, the mark-to-market basis of the credit valuation precipitates a dramatic reduction of collateral, leading to a contraction of credit, liquidity, money velocity, and eventually total money. In our example, as houses sell for less all homes are assumed to be declining in value, banks are less willing to lend, and markets eventually freeze up as money is no longer available for buying homes. Price declines and consequent contraction of money creates a feedback loop. No matter how inexpensive they get, homes sold today aren't bargains if they're going to be cheaper tomorrow. Although the price tag of an asset might be lower, the decreased availability of money for bidding would also cause assets to become more expensive relative to the money used to buy them. Counterintuitively, as assets fall in price, they may become less of a bargain.
This phenomenon may help explain the seeming contradiction in purchasing behavior that people have pointed out during this recent deflation. The world seems to be on a half-off sale, yet few parties are behaving as if the deal is a bargain. Asset investors note that assets are falling in price, yet lament the paucity of money to support bids.
When multiple asset classes deflate simultaneously, the feed-forward effect of price declines on total money supply can be dramatic. When asset prices in emerging markets and U.S. equity markets joined the housing markets in decline, American policymakers followed Friedman's script and immediately began to increase money supply to combat the specter of deflation. Many investors similarly weaned on monetarist theory reflexively shorted the dollar and took long positions on commodities.
As these trends gained momentum, inflation lurked during the first half of 2008 due to rocketing commodity input prices. Notably, faith in monetarist policy amongst investors actualized the monetarist credo that an increase in money supply would cause inflation...for a while. Alas, commodity prices peaked in summer of 2008 and soon joined other asset classes in decline, and through the end of 2008 and the beginning of 2009, asset prices continued to fall precipitously in spite of the continued printing of money by the U.S. government.
A mark-to-cost model for asset appraisal, such as that seen for capital gains tax treatment, would substantially mitigate the insidious feed-forward effect of asset price movements on total money supply. In a cost-based appraisal system, only the house actually sold would be marked up in value; the other houses in the neighborhood would continue to be valued at their purchase prices until sold, and no money would be loaned against their "market value." However, since a mark-to-cost model would be difficult to implement - it would not accurately reflect long term trends, such as a house in San Francisco owned for over a hundred years with a cost way below the market average - a more moderate solution such as asset valuations based on historical trend lines may be more practical. Under this scenario, banks would use an appraisal rate based upon the historical appreciation of homes in the neighborhood, over some set number of years to value the home for lending purposes, rather than the market value at any given moment in time based only on the most recent sales.
This change would seem problematic for America - we are a debtor nation, both to ourselves and to other countries. Stabilizing total money supply at low levels of money velocity could leave the country with insufficient total money to pay off our debts. It would seem that the U.S. remains on an implicit path to print enough money to allow us to inflate our way out of the current crisis, and at some point this policy will create the illusion of success. Eventually, however, the issues discussed above will once again resurface. Price increases will beget the whole cycle of money creation again, initiating the next boom-bust cycle.
The risks involved in implementing a new model for pricing assets may be high, but the risk of ignoring the issue may be a lot higher.
By Joon Yun, Director, Palo Alto Institute - a think tank whose mission is the pursuit of truth through fundamental research.
-----
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