Monday, April 14, 2008

Municipalities relying on Tourism for income...

...had better start working on relocalizing their economy. Other sectors aren't doing much better. As for getting your finances in order, better late than never, I guess.

How the credit crisis is hitting America

...Meanwhile, back here on Main Street in Middle America, it’s looking a lot more like Mean Streets every day. My jaw dropped recently when I read a statistic reported in the Wall Street Journal. It said that said only 16 percent of families have made vacation plans so far this year, when ordinarily 45 percent would have. I suspect that when gasoline prices reach $4 dollars a gallon, the percentage will go down even more. (Today, the joke in the real estate industry about why homeowners are walking away from their properties is not just because they can’t afford the mortgage; it’s because they can’t afford to drive there.)...

That means 2/3 of the families that are known by industry regulars to take a vacation nearly every year have decided not to this year. I would hazard a guess that of those families that sometimes do and sometimes don't take a vacation, most of them won't be. And, of course, those families that can usually not afford to take a vacation have almost zero chance of being able to take one this year. Tourism is in big trouble.

...State and local governments are even starting to feel the pinch. They have also issued pink slips and put freezes on hiring and spending. Why? Like the federal government, state and local tax receipts decline as capital gains and corporate profits vanish. Local taxes are particularly affected when real estate prices all. Because state and local governments don’t run massive deficits, lower tax receipts mean they must cut back. The list goes on and on. Only the US Treasury can borrow without limit and then rely on the Fed to print up the money to pay for Federal deficits...

We've covered this before but it's worth repeating here: Loss of property values and business revenues means your city and state will have no choice but to cut back on your services.

{Update: The Economist
The states' budgets: Time to turn out the lights
From The Economist print edition
State fiscal crises may deepen America's downturn

...Seventeen states are now considering cuts in everything from public-health services to higher-education funding in the next fiscal year, which for most states begins on July 1st. Over half of all Americans now live in a state facing fiscal problems...}

You will have to pick up the slack yourself as much as possible. The MoneyWeek article continues:

...Inflation is pounding the economy, and even Americans who have jobs realise the cost of staples, food and fuel, are rising much faster than incomes. This means that the average worker is spending more but actually buying less! Buying less means less production, and fewer workers!...

If you actually believe those lame "core inflation" numbers the government is spewing, then I have a nice bridge I'd like to sell you in Brooklyn. The real rate of inflation for actual household regular spending is more like 12% annually or so right now, and rising.

...In a few months, investors will begin to realise there are too many retail stores, fast food restaurants, hotels, motels, office buildings and of course, factories, businesses, and workers. Those Wall Street analysts projecting earning gains of 40 percent for the second half of 2008 are just telling another Wall Street joke. If you don’t want the joke to be on you, it’s actually an excellent time to use the latest come back in the stock market as a wonderful opportunity to get out....

You should never invest money in the stock market that you can't afford to lose. It's a gamble and always has been - there are no promised and no guarantees. No one is going to bail you out, no one is going to replace the money you lose.

Right now, your focus should be debt reduction - especially reducing credit card accounts, since they can jack up your interest rate for any or no reason and you have no recourse against them. Don't believe me? Check your "terms." They can change the terms of your credit card agreement at any time and don't have to justify themselves to anyone. That means they can retroactively raise the price of everything you purchased on the card without your knowledge or consent - and you can thank Congress for that, by the way. Certainly getting into more debt is the last thing you should be doing right now, class. Make necessary infrastructure repairs & maintenance to your property if you are a homeowner but all other discretionary spending should be applied to debt reduction at this time, because the prices of everyday items like food and gasoline are going to continue to go up and up, and you don't need to be paying interest to usurers - you need to be saving that money or using it for basic needs instead of lining the fat cat banking robber baron's pockets.

It's almost too late, class. The economy is starting to go to pot - position yourself while you can. You can be part of the relocalization of your community.

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