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The U.S. economy has been quite robust lately, with recent job numbers showing unemployment is at a 16-year low and the major market averages are at record highs. However, statistics show many Americans have stopped paying their credit card bills, and they have stopped paying at a rapid rate.
Over the past two quarters, banks and credit card companies reported that charge-off rates have shown a steep rise, according to Business Insider. Charge-offs are debt that companies cannot collect from cardholders. According to figures released by Moody’s, the increase is the largest since 2009, and Capital One, Synchrony and the First National Bank of Nebraska suffered the largest increases in charge-offs.
Moody’s stated that the increase in the number of charge-offs is unusual given the strength of the U.S. economy and low unemployment figures. What is even more unusual about the spike in charge-offs is many financial companies tightened their lending requirements after the Great Recession, only lending to the most credit worthy borrowers.
The unusual spike in charge-offs does not correlate with today’s stronger economic outlook. History shows that when unemployment numbers rise and people start losing their jobs, the first bills they stop paying are credit cards. However, the U.S. economy is strong and most Americans are currently employed, which has many analysts concerned that banks have lowered their lending standards.
Over the past two years, the ratio of unemployment to credit card charge-offs has been at record lows. The report released by Moody’s now shows the ratio hovering near historical averages, which is a sign that banks and credit card companies have “rapidly” started lowering their lending standards. However, the report does indicate that charge-offs remain pretty low.
Many House and Senate Democrats are rallying behind a federal $15 minimum wage standard, according to the Huffington Post. Across America’s Midwestern states, the $15 minimum wage is either a reality or close to becoming reality.
The Illinois House and Senate recently passed a $15 an hour minimum wage bill that is now sitting on the governor’s desk. Minnesota is in the process of approving a $15 an hour minimum wage after the governor of the state vetoed a corporate-backed bill that would block raising the minimum wage.
With Democrats pushing for a federal $15 an hour minimum wage, it now appears that Democratic governors and congressional candidates across the country will use the minimum wage debate as a key point in their campaigns. Political pundits expect the issue to be a huge litmus test for the 2018 elections.
According to statistics, a $15 an hour minimum wage in Illinois would give 2 million workers in the state a pay increase. The increase would average to around $2,400 a year without affecting employment figures. However, Minnesota’s Republican-controlled Congress is blocking legislation that would block an increase in the minimum wage and paid sick days.
Democrats in the U.S. House and Senate came together earlier in the month to draft legislation that would increase the federal minimum wage to $15 an hour by 2024. The current federal minimum wage is $7.25 an hour and has remained there since 2009. Many Americans today struggle to get by on $20,000 a year, and an increase in the minimum wage to $15 an hour would increase the pay of 41 percent of Americans. Studies show that even single workers with no children across all 50 states would need to make at least $15 an hour just to get by.
Wells Fargo Bank, one of the largest U.S. private student loan lenders was accused by Consumer Financial Protection Bureau (CFPB) of illegal loan servicing practices. The company claimed in a New York Times news article on August 27th, 2018 that they were aware of the issues and had started to correct the problem before CFPB began their examination. The examination was a result of thousands of borrowers’ claims accusing the banking institution of providing misinformation concerning payment options. Borrowers also claimed Wells Fargo Bank allocated their payments to maximize late fees.
If they had more than one loan, the loans weren’t consolidated, but remained as separate loans. Wells Fargo would split their payments without allowing borrowers to specify how they wanted to allocate their payments. The consent order stated after a thorough examination that Wells Fargo failed to inform customers of their right to allocate payments. The order also stated the student loan servicing institution made it very difficult for borrowers to control costs. CFPB found Wells Fargo Bank used illegal loan servicing practices which cost borrowers higher costs and fees.
Americans owe trillions of dollars in student loan debts. The Consumer Financial Protection Bureau is doing everything possible to ensure loan servicing institutions, whether private or federal practice fairly with all borrowers. CFPB regulator, Seth Fortman said he noted in a mid-2016 report that borrowers complained often about federal loan servicers. They were accused of making it difficulty for them to enroll in special programs that lower their federal loan payments. Monthly payments are normally based on the borrower’s net earnings and monthly household expenses, including food, housing and etc.
According to New York Times, Wells Fargo didn’t deny nor admit to the findings of Consumer Financial Protection Bureau. Wells Fargo was also ordered to pay some borrowers $410,000 after finding the bank charged them higher costs and fees for serving their student loans. When consumers file complaints involving private and federal student loan servicers, CFPB has authority to investigate and examine their claims. Wells Fargo didn’t defend their actions, but stated they had already started the process of correcting their student loan servicing practices.
Mobile payment processing technology is transforming the financial world with its advantages of convenience for U.S. consumers and small businesses. In 2014, more than $5 billion in payments were processed using digital phones in the United States, according to Business Insider. The number of Americans using their smartphones to process payment transactions is also predicted to increase enormously, reaching more than $170 billion in mobile payments processing, in three years. Since 2014, small businesses are taking advantage of recent development of payment processing technology, Mobile Point of Sale.
Companies, such as ShopKeep are benefitting of the increased demand for commercial payment technology. Their Mobile Point of Sale payment app accepts consumers’ payments using smartphones and tablets. The payment technology is compatible with new applications to manage inventory, process payroll and market.
The transformation of mobile payment technology started with Apple Pay and eventually Google, Chase, Android and Walmart developed their payment apps. New developments in payment technology will reduce the number of consumers using cash and credit cards. Access to cash and credit cards is quickly available using smartphones and tablets to make purchases and to pay bills online. Payment processing vendors are planning for the transformation, as cyber shoppers and online stores’ demand increase yearly.
Mobile technology has transformed greatly over the years, beginning with built-in camera, calculator, and clock with alarm feature. Smartphones added other built-in apps, including built-in camcorder, GPS, movie play, and television. New mobile technology will ultimately change the way consumers traditionally process payments. In the 1990’s consumers had to literally write a check or use cash for bill pay to creditors and merchants. Today, millions of U.S. consumers are using digital phones, tablets, laptops and PCs to process bill payments.
Consumers, small businesses and corporations are going digital for financial transactions, including payment processing, receiving payments and online banking. Analysis of the payment technology industry indicates an increase in mobile payment processing technology sales to small businesses and an increase of Americans using smartphones for most payment processing, in the near future. Entrepreneurs are using tablets and phones for running their online businesses, including tracking inventory, processing payments to vendors, and receiving payments from customers. By 2019, consumers and small businesses are expected to contribute to the increase in mobile payments processing.
While many students take out government student loans in order to pay their tuition fees, others are unable due to religious reasons. This often requires students to sacrifice their education due to an inability to pay the school’s charges. A student with a desire to be an investment banker discovered this dilemma when applying for Kings College in London.
When Ismail Jeilani first decided to become an investment banker, tuition was drastically lower than they would be when he attended college. The fees tripled in 2012, and he had to find a way to pay £9,000. He refused to take out an interest-bearing loan, and he was unable to make enough money through work.
Through tutoring other students and teaching throughout the term, he was able to pay the entire amount by his second year. Upon graduation, he toured the country with other entrepreneurs to discuss their successes in attending college without paying interest. He then created QardHasan. Based off of crowdfunding and loans from the community, the program provides interest-free loans. He has also teamed up with businesses willing to support the program.
In addition to local businesses and community funding, the government is now researching the ability to provide students with loans meeting religious requirements. Instead of paying interest, they instead make a charity donation to a fund for other students in need of the loans. Students can then pay the loans forward, allowing them to avoid choosing between their faith and education.
Jeilani doesn’t expect the government proposal to pass easily, so he is committed to continuing his crowdfunding measures. He is also considering an option where students will be able to receive grants after funding a specific amount. This would prevent a situation where students are still needing interest-bearing loans if unable to fund through community sources.
Through the programs, Jeilani aims for students to be actively working with and in their community as a way of continuing the mission. Currently, when a student receives £500 in loans from crowdfunding, QardHasan will match the funding with another £500. He understands that while students won’t be able to fully fund all of their tuition fees through this method initially, it’s a way to give them a hand up to the start level. If interest-free loans weren’t available, they wouldn’t be able to start at all.
There is no doubt that economic data affects stock markets. This can be divided into two types: soft and hard data. Soft data includes various sentiment surveys such as University of Michigan Consumer Sentiment Index, The Business Roundtable CEO Economic Outlook Index, and NFIB Index of Small Business Optimism plus multiple others.
On the other hand, there is hard data such as retail sales, GPD growth, and so on. In an interesting article, MarketWatch points out that while the soft data encourages investors to buy more shares, the hard data says otherwise.
Let’s compare. The Consumer Sentiment Index stands at 97, near its 13-year high in January. Meanwhile, the The Business Roundtable Index just had a biggest increase since 2009. At the same time, NFIB Index is in the sixth consecutive month of high optimism.
Now, let’s look into hard data. Retail sales only rose 0.4% last month, which is less than expected. Also, sales of cars and trucks fell for a fourth month. At the same time, banks are lending less as consumer debt has made a new record at nearly $13 trillion. All while markets are making new highs. S&P 500 is currently valued at 17.5 times its earnings, and that is quite high.
In 2009, in the midst of financial crisis, S&P 500 Index was trading below 700. Now, it stands at 2,400, more than triple its low. When it comes to Dow Jones Industrial Average, it was trading well below 7,000 in 2009, and now stands at over 21,000. It is also more than a triple off its low in 2009. And the Nasdaq Composite has multiplied as well.
The point is that markets are valued high, while some hard data is worrisome. But, there is some fuel left. Unemployment rate has hit multiyear lows, while Trump’s administration is looking for big corporate tax cuts as well as massive infrastructure spending.
At least, the markets haven’t gone through as much speculation as bitcoin has. The cryptocurrency is having an astronomical rise. A $1,000 bitcoin investment in 2011 is not worth $38 million.
As many stocks are fully priced, investors are finding it difficult to find bargains. Some decided to speculate on bitcoin. How it will play out down the line is yet to be seen, but it’ll be truly interesting, if not painful.
Have you ever dreamed about living in an America where you never needed to worry about money? Many people have. In fact, many folks probably run this thought experiment through their heads imagining they are simply so rich they never need to worry about money again. However, there is another way to think about this situation. Interestingly it involves imagining an America where money simply doesn’t exist. At least, this was the thought of one great thinker. Jacque Fresco was a futurist who imagined all of us living in a world without money. Sadly, he will never live to see his dream fulfilled. He recently died in Florida at age 101.
Fresco had an epic plan. His dream was to create clusters of small cities that would be run by computers. Fresco understood that politicians were often driven by ambition and greed. He felt computers could solve that problem by being designed to distribute resources equally. Fresco owned a massive compound in Florida. Here, he even had the shell of a futuristic city built on 21 acres of his land. People could take a tour of the property and listen to his ideas.
Fresco wasn’t naive. He lived knowing his ideas would never be adopted in his lifetime. However, he was adept at predicting the future. For example, in the 1960s, he predicted computers would drive cars to make car crashes nearly impossible. We all know that this technology is right around the corner for that exact reason. If he was right about computers taking over a human job like driving to prevent errors, he just might be right about computers taking on the equal distribution of money as well. It’s no secret that humans often perform that task with constant bias and error! Computers might be able to fix it.
Fresco also knew it would probably take a catastrophic war to see his ideas adopted. It would take nothing less for people to realize the constant cycle of war, poverty, boom, recession, bust, and war again would need to somehow be stopped.
What do you think about Fresco’s ideas for American finance? Do you think it could ever work for America? Let us know what you think about Fresco’s vision in the comments below!
The latest minutes from the Fed’s meeting last month indicate that the policymakers are willing to hold off with interest rate hikes until they can determine that the recent slowdown in the U.S. economy is only temporary. According to Investing.com, traders are pricing a 77% chance for a rate hike this June, and only a 40% chance for another one in December. On the average, traders expect two rate hikes this year.
The Fed is also favoring a reduction in its balance sheet, although a gradual one. So Fed is expected to sell bonds rather than buy, thus decreasing liquidity. As interest rate hike expectations are lesser now, the dollar has taken a bit of a hit. Now, the dollar index stands at 97, close to its six-month low.
Meanwhile, gold prices rose. Usually, higher interest rates and higher dollar lead to decreases in precious metal prices, and vice versa. Lately, gold went up to over $1,250 an ounce, while silver traded at $17.25. These price levels are still quite off their all-time highs in 2011.
Precious metals are also considered to be safe haven, especially during times of political turmoil. But, they have found a new competitor: bitcoin. This digital currency isn’t under control of any government and more online sites are accepting it for payment. This has led to a huge rally in bitcoin’s price.
Bitcoin now costs $2,300, much more than gold. At this point, bitcoin is considered a safe haven for political risk, although it hasn’t been tested with major financial collapses, unlike gold. There is no doubt that bitcoin has been subject to huge speculation and could be in a bubble phase now. Since bitcoin isn’t regulated by any central bank, no country can issue it or affect its price directly with monetary policy.
This year alone, bitcoin has risen 175%. The rise is due to growing acceptance of this cryptocurrency, political uncertainty, as well as speculation. A lot of Chinese money is now going into bitcoin, thus adding to its astronomical rise.
Meanwhile, both Nasdaq and S&P 500 hit new record levels after the Fed meeting. Oil prices have also hit 5-week highs with Brent trading at $54. It all looks like its 1999 again. Speculation is at its fullest.
The recent meeting of the Federal Reserve Board did not produce an interest rate hike. Federal policymakers think the recent economic slowdown may continue. But there is an 83 percent chance the Feds will raise rates a quarter of a percent at the June meeting. The U.S. economy is creeping along at a 1.4 percent growth rate. The projected growth at the end of 2017 is 1.9 percent. Many economists think the economy will not grow very much in 2017, but according to President Trump’s recent budget plan, those economists are wrong.
Donald Trump thinks the economy will grow by three percent once all his budget cuts and increases are in place, and that growth will take care of the spending he plans to do over the next four years. But there are two issues with his thinking process. The first issue is his budget won’t pass Congress. And the second issue is, massive tax and spending cuts will not increase economic growth the way Trump thinks it will.
President Trump is playing a game with Democrats rather than focusing on the needs of the people. His unrealistic assumptions and his shoot from the hip style will not bring the national debt under control. And economic growth isn’t going to explode unless he makes hard tax and spending choices. His tax plan, healthcare plan, and budget are on life support, and the prognosis isn’t good.
President Trump’s budget is based on his perception of the nation. He believes more military spending is more important than social programs that help Americans live in an unbalanced society. The country needs programs like “meals on wheels” and National Institutes of Health programs. Instead of draining the swamp, Trump is trying to hide it.
There could be two more interest rate hikes in 2017. But passing a meaningful budget and putting realistic tax rates in place for all Americans will not be part of the American dream in 2017. There is little hope that 2017 will be the year of great political and social progress. But it will be a year of name calling, political jousting, and incompetent behavior. Trump and his team will make sure the country experiences social chaos and unrealistic promises.
Are financial assets in the United Stated overpriced? Since the financial collapse of 2008, the stock market has risen to new heights. According to MarketWatch’s Sentiment Table, the American stock market is expected to first stall and then fall.
Based on historical data, the Sentiment Table has been a great indicator for short-term oversold and overbought conditions, claims MarketWatch report. For the fast several months, this indicator hasn’t produced an alert, which means that change may be coming soon. What change exactly? It is more likely that the market will fall than rise, many analysts think. At present, the Sentiment Table stands at 90, and once hits 100, it will officially indicate overbought conditions.
This isn’t the only market indicator used. There are quite many others such as the Relative Strength Index (RSI). This indicator can be used for both indices, such as Dow Jones Industrial Average, as well as individual stocks. When RSI falls under 30, it indicates oversold conditions, and a rise above 70 indicates overbought state.
Another likely overbought asset is the bitcoin. The digital currency has just made new highs. An investment of $1,000 back in 2010 would now be worth $38 million! Bitcoin has been hitting new highs almost every day now, and it starts to look like a big bubble. As more companies accept it as payment, the cryptocurrency has had a major run. But, at this point, the exponential rise in its value resembles speculative mania.
It is important for investors to diversify into other asset classes. But, bonds can be quite risky now. Once interest rates rise, bond prices will fall. Precious metals are an alternative, too. Gold is off almost 40% off its all-time high of several years ago, but rising interest rates are not positive for precious metal prices.
Real estate is another alternative. After 2008 crash, property prices have recovered and the signs coming from the real estate market are positive. The unemployment is low, foreclosures are rare, and builders are confident, while many housing markets still haven’t reached prior peaks.