Deflection speech pervades society. If you don’t practice it, you know someone who does: “I don’t have time!” and “I am busy!” are popular clichés folks use to shift responsibility for neglected tasks. I think for two reasons we accept and validate these absurd excuses. First, unwittingly, we ignore two facts: (a) Each person has 24 hours daily, (b) busy means “occupied with the mind concentrated,” and is normal–you are dead when you are not busy! Second, political correctness stymies us: fearing being accused of prejudice or intolerance, often, we don’t require accountability; so, we entrench shoddy performances.

To me, the most troubling deflection is, I need to ‘repair’ my credit rating! Did it elope with the milkman and squander it’s inheritance? Did it become bad overnight? Or, did you choose poorly?

To embed deflection speech, folks embrace its twin, victim mentality: after bad choices, they deflect, and then blame. Today’s favorite blame recipients are financial institutions. Certainly, many are conniving, dishonest, manipulative, unscrupulous; but when folks borrow, they know whether they might be able to repay. Sure, many financial institutions won’t disclose all, but borrowers know when they take on risks; yet they borrow expecting circumstances to be favorable. Conditions turn sour, and oops; the bank or other financial institution made them do it! Go figure!

We fix problems in the RAW only: recognize, accept, and work on them–dealing with symptoms won’t help. Today, our debt-riddled society is in victim mode. We must stop blaming everyone but us, and understand we have attitude issues, only we can fix. Led by Governments, folks want to strangle financial institutions. People don’t focus on needed attitude and behavior changes, rather, they deflect to someone or something: they try to repair the unfixable credit score, instead of leaning on Jesus as they look at their circumstances, learn from them, and with His help, adjust attitudes and behaviors appropriately.

Changing specific behaviors will affect credit scores over time. If in debt, be patient! Likely, you drifted deep in debt gradually; by God’s grace, you will move out slowly. Becoming debt-free is a journey you can start today, but you must own the process. It needs to be part of a Christian financial plan–a plan routed in a solid relationship with our Messiah Jesus. To hop on the recovery trail, ask a trusted friend to hold you accountable for one month, for three steps:

First, do a spending fast: spend for stuff ethically, legally, morally, and life sustaining only. Sorry; no eating out!
Second, record all spending to learn spending drivers: why, when, how–process followed before spending.
Third, use a credit card only if funds are in the bank: don’t raise your debt! If you are not there, imagine you are at your debt limit. What will you do then?

At month’s end, treat yourself; but without extra debt. Note challenges; select one, and then prepare a goal and a plan to work on next month.

For more on doing a spending fast and becoming debt-free, read chapters four and five of The New Managing God’s Money-The Basics and Managing God’s Money.

ⓒ 2010 Michel A. Bell.

Article first published as Can You Afford Your Lifestyle? on Technorati.

Cheap credit lulled us to believe credit is limitless! Today, funds are not easily accessible as before, but, for many consumer goods, inexpensive financing exists. Seductive advertising’s allure with low-priced funds continue to entice consumers to buy stuff they don’t need, while they try unsuccessfully to manage money: refinance, consolidate, declare bankruptcy. These are wrong metrics: we can’t manage money!

Money management is a misnomer. Lifestyle choices drive spending: where we live, the cars we buy, the clothes we wear. To avoid sinking deeper into debt, consumers must question lifestyle choices. Some might have to step back a tad–especially with Government debt climbing at all time highs, unemployment almost twice pre-financial crisis levels, and businesses recovering, but not employing. According to May 14 International Monetary Fund’s Fiscal Monitor, “even as the global economy improves, fiscal balances in advanced countries, are worsening.” Happily, though at record levels in Canada and the United States, household debt is falling. Have we reached our debt limit? Given current economic uncertainties, I think we have.

Affordability remains unimportant in the spending decision: we must resurrect it! What does affordable mean? More than the popular view of ability to meet a few monthly payments. It’s looking at the proposed commitment, and being reasonably confident of meeting all commitments (consumer goods) from today’s projected cash flow with no extra debt. If you expect additional funds, exclude them from the spending decision. Most of all, understand your decision could compromise short and medium term goals, such as returning to college.

Can you afford your current lifestyle? To upgrade–buy that new electronic toy, appliance, furniture–will you use cash, or a credit card and pay the full balance? If not, wait; you can’t afford to spend today! The Affordability Index might be a helpful guide.

ⓒ 2010 Michel A. Bell. For more Christian Financial Advice, visit Managing God’s Money. [4NEADNZP5JQS]

In its May 14 Fiscal Monitor, titled Navigating The Fiscal Challenges Ahead, The International Monetary Fund (IMF) paints a grim, yet realistic picture. The report states, “even as the global economy improves, fiscal balances in advanced countries, are worsening.” One significant concern is the “exceptionally high” government financing needs of many advanced economies. US Government debt, average maturity of 4.4 years, is about 100% of GDP and projected to rise–a significant exposure to interest rate hikes! This year, the US will need to raise debt equivalent to 32% of GDP to rollover maturing debt (21% of GDP) and for new deficits (11% of GDP).

To paraphrase an analyst on a recent evening news, here is our problem: Today, individuals should be getting out of debt and building savings; but that’s bad for the economy! What do we do? “I don’t know,” she said. My reaction? Ouch; that’s scary! We are in unchartered waters. Many previous economic and fiscal theories don’t apply, and we are fumbling our way through!

The world could be in for protracted sluggishness, deflation, stagflation, or other unimaginable effects! I think management, unions, ministry and church leaders, consumers, have special roles to navigate through these difficult times.

Management & Unions
Management and unions must accept that businesses can’t survive with outrageous management bonuses, adversarial labour relations, and restrictive work rules. The gap between executive and workers compensation must close. We need more enlightened approaches that recognize (a) there is a time to out-source, locally and abroad, (b) paying folks to do nothing or to be unproductive will kill organizations, (c) management can’t guarantee jobs to union workers; the market place determines which companies survive.

Ministry & Church Leaders
Ministries and churches need to examine priorities, especially their desire to own and build buildings. They need to realize that borrowing funds to build might not be in their ministries’ best interest, and unwittingly, could be a distraction. They should stop coercive and manipulative fund raising, set aside egos, examine their calls, be ready to step aside, merge, reduce, or close ministries and churches, if that’s God’s plan. They must understand when funds are tight and drying up, this could be God showing them it is time to go. As well, they should realize their primary focus is the “soul,” not on the “material.” Recall in Matthew 16:26 (NIV), Jesus said, “What good will it be for a man if he gains the whole world, yet forfeits his soul? Or what can a man give in exchange for his soul?”

Consumers
The decision to spend has three stages. The first two and most significant are not financial, but attitudinal; they answer: (1) Do I need the item (2) Can I afford it. The third, is the financial… how do I pay for it? If we need more debt, we shouldn’t go to stage three!

Times are difficult, but Messiah’s grace is sufficient to see His children through. He has been faithful to sustain us, and will continue to be faithful. That’s His promise; trust Him!

According to Federal Reserve Chairman Ben Bernanke on 2 August, the U.S. economy hasn’t recovered fully: it’s improving, with high unemployment and a weak housing market leaving consumers unsettled. The economy has a “considerable way to go” before it recovers fully, he said. As well, he remarked, consumer spending should pick up in the coming months, as income rises and credit conditions improve.

Consumer spending in the U.S. is about 70% of the economy (GDP), slightly less in Canada. Bernake and others are looking to consumers to spend, using debt, so the economy can sustain a more rapid “growth” clip than the 2.4% annualized second quarter rate.

I don’t get it! We have a vicious cycle here! U.S. unemployment is around 10 percent, over twice pre-recession levels. Consumers are heavily in debt, and rightly, lowering debt. According to Federal Reserve’s G.19 report on consumer credit, July 8, 2010, consumer debt (excluding mortgages) at end 2008 was $2.56 trillion, and has fallen steadily to $2.415 trillion, at 31 May 2010. Consumers need to continue to focus on paying down debt. With the fragile economy and high unemployment, it’s unrealistic, in the near term, to expect a return to pre-recession spending levels!

Bernake and other policy makers need to understand we are in a new era. Gone are old days of maintaining low interest rates as bait to get consumer spending, to drive the economy, and to spew more taxes to Government. They need to accept three factors. First, Government isn’t responsible to create jobs, rather, they should create conditions for the private sector to generate sustainable jobs. Second, there is a debt limit. When the economy is down, consumers reach their limit quickly … today, many are there! But irresponsible Governments get there slowly … the larger the economy the longer the period. So, for extended periods, they print money, spend, and mortgage our futures. But as we see in Europe (Portugal, Ireland, Greece, Spain…), for Governments, there is a limit, too … and officially, a few are there! Third, irresponsible consumer spending, irresponsible lending, and prolonged Federal Reserve low interest rates policy, contributed significantly to the Great Recession.

Government must work to lower dependence on consumer spending (presently 70% of GDP) to sustain acceptable economic growth levels, by creating conditions for businesses to invest in capital goods, R & D, export and export related activities. Reality is, consumers whose retirement savings evaporated, who are unsure about their employment, who have been out of work for extended periods, are unlikely to start spending to “grow” the economy.

In my opinion, there is a strong probability US and Canadian economies will be sluggish for a couple years as consumers pay down debt, adjust spending habits, and re-build retirement savings. More stimulus spending and more Government bail out will not return the economy to pre-recission growth rates! We must be patient and understand we are reaping effects of many years of over indulgence. As well, we must understand patience will lead to lower living standards!


ⓒ 2010 Michel A. Bell. For more Christian Financial Advice, visit Managing God’s Money

Discussion and debate in the USA about financial regulation omit two key causes of the recent financial crisis. First, the economic system encouraged irresponsible consumer spending and irresponsible financial institution lending. Second, and flowing out of the first, a lack of integrity permeated the sector. “Liars loans” were common: Borrowers lied about income, and lenders knowingly accepted this information and processed documents. As well, financial institutions developed and sold exotic financial instruments, whose values they knew were questionable. These activities were common knowledge, the economy boomed, Governments bragged about their strong economies.

Will new financial regulations prevent liars loans? Of course, they won’t! Will they change the emphasis away from encouraging irresponsible lending to and borrowing by folks with bad credit? Hopefully they will. But we shouldn’t need regulations for financial institutions to lend to qualified folks only. And when they extend loans to unqualified borrowers, those lending institutions should fail … go bust, as the consequence. We don’t need Governments deciding which companies should survive and which should fail. Indeed, typically, Governments are poor stewards of our tax dollars. GM, Chrysler, insolvent parts of AIG should have been allowed to fail. The economy would be better off in the long run. New regulations will create more bureaucracy, can’t regulate integrity, and in my opinion, won’t be able to keep abreast of financial sector’s development of new and even more exotic financial instruments!

The problem is our economic measuring system is broken. Governments, use consumer spending as a guide to economic prosperity. They want consumers to spend, they want financial institutions to lend, but they won’t accept the reality that there are limits to debt. In the near term, consumers need to spend less, and so, unemployment will remain high. Spending stimulus funds will not help, rather, it will waste taxes! How about lower taxes to give folks more discretionary spending? And create less bureaucracy for companies to grow!

I think we need less Government, less, but more relevant and effective regulations, and less official emphasis on consumer spending as the key economic growth engine. The last will need careful thought as, in the short term, lowering consumer spending will add to higher unemployment. That’s reality!

ⓒ 2010 Michel A. Bell. For more Christian Financial Advice, visit Managing God’s Money

I believe global stock markets will be jittery for at least the next 18 months. Using borrowed funds, individuals and Governments over extended themselves for years prior to the recession.  During the recession, Governments stimulated —a euphemism for waste, and pork— their economies, using debt. Meanwhile, consumers borrowed to spend and Governments bragged about economic growth.

Now, we must account for our irresponsible behaviour. Individuals and Governments carry excessive debt. Greece, Portugal, Ireland, and England, to name a  few countries, are awash in debt, and their Governments need to start reducing programs and policies that drive spending.  Unions, particularly Government unions, will balk at cuts, economies will be disrupted and Government debt will increase before falling! Do these Governments have the confidence to transcend politics and start pruning programs?

UK’s Conservative Prime Minister, David Cameron, in a recent speech preparing the public for his first budget, said, “The overall scale of the problem [state of the country's finances] is even worse than we thought … decisions we make will affect every single person in our country. And the effects of those decisions will stay with us for years, perhaps decades to come.”  A day of reckoning is coming for many countries, USA and Canada, included. We must start to tell people as Cameron did, that decisions need to be made that will lower Government spending, which will affect people for decades. We must stop looking to Government for all solutions. I believe with less Government, Canadians and Americans will be much better off!

So, since I don’t believe existing Governments in North America and Europe will shrink, and cut unneeded programs significantly, global debt will linger and stock markets will oscillate regularly! Be careful as you ride the cycles!

Statistic Canada (StatsCan) reported end 2009 Canadians’ household debt was a record $1.4 trillion, or 144% of disposable income. According to a recent report by the Certified General Accountants Association of Canada (CGA) this debt to income ratio is the worst among 20 advanced countries in the Organization for Economic Co-operation and Development.

Individual Canadians and Canadian Governments took on more debt during the recession. Interest rates have been at historic lows, and can only go up. Will individuals be able to service debt at higher interest rates?

Not many folks seem to realize present personal debt levels aren’t sustainable. Canadians have lived with easy, cheap credit for so long, they do not see dangers of continuing to buy now and pay later. Sadly, when the credit crunch comes, Canadians will blame banks, Government, and others … everybody, but themselves!

Folks with low variable rate mortgages must understand nobody made them take these mortgages. It’s easy to blame finance institutions for individual, irresponsible debt acquisition, but at the end of the day, each mortgagee signed a contract … the financial institution “didn’t make you do it!” Borrowers are not victims!

During the global financial crisis in 2008, as he battled to “keep the system afloat,” I listened carefully to former USA Treasury Secretary Hank Paulson’s frequent pronouncements. I was convinced he was too close to investment banks, and he exacerbated the crisis by his reactions: fear, panic, and myopia. After reading his book, I am more convinced.

Paulson was a former CEO of investment bank, Goldman Sachs. He knew CEO’s in the industry well. I believe his on-going dialogue with them and his recommendations to the Government to save failing banks flowed out of his sincere belief that these banks provided a needed service to the economy and their failure would be catastrophic! Still, even if failure of some of these banks would have been disruptive, and it would have been, I am surprized he would recommend bailing them out with taxpayers’ funds, without acknowledging their role in the economic collapse, particularly their “gambling activities” of creating useless financial instruments, selling them, and then betting against them!

The investment banking system was corrupt, secretive, unregulated, and needed reinventing. I believe the eventual massive economic downturn is no more than what might have been had Paulson not been so dedicated to saving these investment banks. So committed to keeping these banks afloat, Paulson (and others) encouraged the Government to buy their bad assets with taxpayers’ funds! This is unreal! Banks gambled, lost shareholders funds, yet the Government used taxpayers’ funds to bail them out! And none of these executives have been required to repay bonuses made from their gambling operations, which later caused many folks to lose millions!

This is the new deal with the crazy idea of “too big to fail”: Banks take risks, executives get bonuses, when things go wrong, eventually, the tax payers “save” the system! Go figure!