What are Inflation Expectations?

You think that sudden magical flat line in 06, 07 predicted by the Philly fed is politically motivated? Nah, how can you say such a thing!

erm, wait a minute. I haven’t really paid much attention to reserve requirements in 10-20 years, but am I correct in understanding that the current requirement for time deposits is ZERO? And some demand deposits are being treated as time deposits for reserve purposes? If so, that’s just pure insanity. When did that happen… oh let me guess.

Perfect Storm may be coming in that case once the Piggies (banks) have to face up to their credit policies of the past several years. If you are old enough to know what the RTC was, you will appreciate my amazement that we seem to be on the cusp of a similar debacle. Then again, I never thought that I’d see another Vietnam in my lifetime, let alone one created by people who are only a bit older than myself.

Sammy, I don’t think the explosion of credit card debt is surprising. People can no longer use home equity lines of credit to pay the mortgage so they’re using credit cards for everything but the mortgage payment.

heads up!

Just looking at how the more volatile currencies that are paired with USD are moving this evening, it appears that there will be a Pause! tomorrow. Of course that could all change with one missile strike or if Paris Hilton decides that she’s not going to remain celibate for a year after all, but you can filter the data however you like.

Philip said: “Strange that debt skyrocketed but retail sales declined. What were the debtors buying?”

Mortgage payments.

I saw the comment on another website about consumer debt. I was also reminded that on some of those offers a rate adjustment triggers if (1) you miss one or two minimum payments in a 12 month period; or (2) they don’t like the way your credit report looks–you could be on time with them, but screw up on another card and you go from 0 – 24% in nothing flat. I can see nothing but consumer debt misery. I guess a tax break could be offered that would return credit card interest debt to a tax deduction. Remember that?

Credit card interest is tax-deductible in many cases if you are a student. It says right in the IRS publication that any debt used for qualifying educational expenses while you are a student is student loan debt, and specifically lists credit cards as an example. Qualifying educational expenses include housing, food, travel between your school and your parent’s home, car expenses, books relevant to your classes and a number of other things. However, the entire debt must be for qualifying expenses. Buying just one CD or movie ticket disqualifies the entire amount from being deductible unless you use a different card to keep things separate.

A small amount of the increased credit card debt is from people like me taking out $25,000 in 0% no-fee credit-card debt and putting it in to a high yield (5+%) money market account. Probably doesn’t amount to much, since the number of people willing to have that much credit card debt that are disciplined enough to borrow that much money and not spend it is pretty small. It is a nice, risk-free $100/month, but you need to make sure all your payments go through on time.

If you have a good credit history, you should be getting offers in the mail for 0% introductory rates on balance transfers. Some of them come with no fees. Transfer the balance to another credit card, then call the second company and ask for a refund of your credit. Be careful with where you transfer the money, some companies don’t like getting a balance transfer of several thousand dollars when you don’t owe them anything. Citibank is generally recommended as they don’t care and have a convenient link on their website so you don’t even have to call them.

Writing a check to yourself might count as a balance transfer and it might count as a cash advance. Read everything that comes with the checks carefully, or you might get charged a 3% (or higher) fee with no maximum and have to pay 20+% interest rates from the day the check clears. Credit card companies are very good at deceptive wording. Do not do this if you are at all unreliable about making payments on time or if you don’t know what “universal default” means.

And remember that your credit score will be terrible until you pay off all the debt. Having 90+% utilization on even just one card drops your score significantly. Potential consequences include being denied good loans and having other creditors cut your limits or even close your accounts. Do not even think about doing this if you have to apply for important loans in the next year. Expect it to take up to 3 months for your credit score to recover after you have paid the balances in full.

There are many threads about doing this on various financial community websites. fatwallet.com is one example. People discuss strategies and potential problems. They also provide updates when things change. Some people are doing this with $100k+ in total loans at intro rates.

Mike, the reference to the Philly Fed is to the Philadelphia Fed’s Survey of Professional Forecasters. Basically they poll Wall St. economists. So don’t jump the gun so fast on the conspiracy theories.