The Causes of the 'Great Recession'

Recently in the news there has been a lot of talk about the 'recession' that America is entering into. In fact, a British news agency has referred to America as entering into another 'great depression.' The housing market has crashed and foreclosures are at an all time high. The financial markets have crashed. The price of oil and gasoline has been skyrocketing and the 'experts' are predicting that it will continue in that direction. Inflation is racing forward as the price of milk, wheat, and other staple items continue to rise.

Then the fingers are pointed. Democrats point to the policies of president Bush. Republicans point to the fact that the Democrats have controlled congress and should have legislated a solution to this long before now. The media blames the banks and the mortgage brokers calling them names like 'predators' and 'sharks.' Some have even blamed the media claiming that their announcement of a recession has created a self-fulfilling prophecy. People hear in the news of a recession so they spend less money to prepare. Since they spent less money the economy becomes stagnant.

In a small sense, every person listed deserves a small portion of the blame. The banks made poor decisions in able to sell their loans. The media beat this recession into our heads because the sound of that word sent their ratings a fraction higher. Democrats in the congress have actually been putting pressure on the financial industry to make more loans to lower income families so that they can own their own homes. That sounded noble until you realize that a huge portion of the foreclosure market is comprised of lower income families who would not have been approved for a loan five or ten years ago. They weren't done a favor by being granted a loan that they could not afford. Their blame, however, is only deserved in a very small way.

Nobody seems to blame the individual Americans whose houses are being foreclosed. No one wants to point the finger back at their own irresponsibility. Recently in the news they announced that a large percentage of Americans feel like they have less money than they had five years ago. The report went on to claim that a majority of Americans feel like they have more debt and less money saved than they did five years ago. Yet not one person wants to point to the poor savings and budgeting habits of the American people. In fact, they were using these statistics to point to the idea that America needs more legislation and better government policies to curb this negative trend from moving forward.

We truly do live in a welfare generation. We have developed a society that believes that they deserve to have more than they have and that it is the governments responsibility to make it happen. I watch every day as the people around me who make far more than I do spend all of their money, complain about the banks and credit card companies charging them fees for spending too much or for paying a bill too late, and go looking for added government hand-outs! We laugh at our grandparents and call them 'old fogeys' when they talk about their experiences through the great depression and in so doing we dismiss decades of wisdom.

As I write this article, I think of my personal financial situation. I have thousands more today than I had five years ago and I would be considered lower income. I have almost no debt and I have money in savings. I make far less than many whose lives are in ruin and I live in an area where the cost of living is extremely high, Washington D.C.

What America needs is a revival in the concept of personal responsibility. I realized a long time ago that I wasn't going to be a success financially by relying on the mandates of Congress, the generosity of a bank, a policy of the president, or by the good fortune of the stock market. I learned early the truth of hard work, saving money, budgeting, carefully and conservatively investing what you have saved, and a few other tricks that our modern generation seems to have forgotten.


In Christ,

Nick

5 Principles for Managing Debt

Many people are greatly hindered in their service for God because they cannot afford to do what God has called them to do. Two years ago a friend of mine wanted to pastor a church but had to stay and work a secular job until he could pay off tens of thousands in debt. He could have begun fulfilling his calling years earlier had he not made the bad decisions that landed him in that situation.

This post is my attempt to share some financial principles that I have learned over the years. I have yet to pay any interest on a credit card and have, in fact, made hundreds, if not thousands, of dollars from credit cards. I am the type of card holder that the credit card companies hate! Let me teach you a few rules to live by for financial success in the area of debt management.

1. Keep Debt to a Minimum! You should retrain yourself to consider all debt as bad. You should strive each month to pay off as much of your debt as possible. If the payment due is $20 then pay $30. Check this out: According to CNN Money, the average American family holds over $9,000 in debt. Wow!
   
   

   "The rich ruleth over the poor, and the borrower is servant to the lender."
   

   ~ Proverbs 22:7

2. If You Can't Afford It, Don't Buy It! Most people base their standard of living on how they see others around them living rather than on their own monthly income. In fact, I often see my neighbor complaining about his financial situation only to see him go out and buy a new car or some video games because the store let him buy it on credit. According to MSN, 43% of Americans spend more than they earn each year. This kind of buying defies logic and it will lead to absolute financial chaos!



"Don't sacrifice the future on the altar of the immediate!"



3. Learn the Difference Between Good Debt and Bad Debt! There are two element to this principle and only one exception. First, if you are paying interest, it is bad debt. A friend of mine once told me what a great deal he got on a computer. Later he made the mistake of showing me the credit card bill that was charging him over 20% in interest plus several late fees. He ended up paying nearly double what the computer was worth. What a great deal!?!
   
   Second, if you don't have the money to pay it off, it is bad debt. Make it a rule that you will not spend more than you have in the bank. Decide that you will not charge more than you can pay off each month. If you pay your credit cards by the end of each month, they will not charge any interest at all.
   
   The only exception to this rule is in buying a house and that is based on the faith we place in the appreciation of its value. Discounting the tax benefits, we know that over the life of a mortgage its increase in value will outweigh our loss in interest.
   


4. Take Advantage of 0% Offers! Two years ago, I received a letter from my bank, Fifth Third Bancorp, in which they gave me three checks that I could write against one of my credit cards. In the letter, they offered no fees or interest for six months. I had an idea. I called them and asked them to increase my credit limit to $10,000. They checked my credit score and immediately approved. I took that money and placed it in an interest bearing account. Six months later, I payed it off and incurred no fees. I made several hundred dollars.
   


5. Take Advantage of Cash Rebates! I have a credit card from Chase bank that offers 5% cash back on all purchases at gas stations, grocery stores, and pharmacies. I purchase all of my gas and groceries on this card and I pay it off every month. Over the past year or so, I have made over $500 and have yet to pay any interest or fees on this card. Look for deals like this to take advantage of.

Keep in mind that it does not matter what income level you are at. I learned these principles when I was at an extremely low income level. I was a poor married guy trying to pay his way through Bible college. Yet even at a low income level, I was able to put more money into savings every month, I was able to learn about investing, and I was able pass up a lot of my friends financially even though they made more money than me. Don't waste your money. Be a wise steward of what God has given you and you will be free to serve him without restriction.

Please post some comments on this post and share with us what you think about these principles. Please share with us some of the principles that you practice in this area that I may not have mentioned or that I may need to learn.