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Three Signs A Perfect Economic Storm is Brewing

by Bruce Haring

There are several stories making the rounds that seem to indicate there’s economic trouble brewing. Let’s connect the dots.

First, a new Federal Reserve survey found that more than 2/3rds of Americans were worse off financially in 2013 than in 2008. The survey responders compared 2013 incomes to 2008. The fact that so many are doing worse “highlights the uneven nature of the recovery,” according to the Fed.

The central bank revealed this factoid in its Survey of Household Economics and Decision Making, which it conducted for the first time to monitor the nation’s recession recovery. The data the report collects is not found in other US reports.

Among the survey’s other findings: a majority of renters would like to buy a home, but can’t afford one. Just under half of Americans have failed to plan for retirement. And about one-fifth of Americans said a major out-of-pocket expense for health care was unlikely to be covered.

The Fed report bottom line: “A small, but significant,” core of respondents continues to experience economic hardship on multiple dimensions. A sizable fraction…appear to be financially vulnerable to unexpected events such as a serious illness, unexpected expense or job loss.”

In other words, in a jobless recovery, the majority of citizens have prospects that are dim.

Let’s tie that in to two other developments on the horizon. The Economics and Decision Making report arrives at a time when the Federal Reserve is expected to end its quantitative easing program, which has kept interest rates low. The Fed has tapered its bond-buying program since last December and is expected to end it in October.

Keep that in mind as we note that the FICO corporation announced last week that it will be easing its credit score standards. The personal credit score provider won’t count medical bills that are overdue. It also won’t ding your personal report for a collection item that’s been paid off.

The new deal was put together between unnamed lending groups and the US Consumer Financial Protection Bureau. The idea is that more people will become eligible for loans and perhaps pay lower interest rates.

Of course, that’s the ideal. What will probably happen is that the money that’s been sitting on the sidelines by the lenders and earning minor interest will be trickled out to certain people, who will probably pay dearly for these cash infusions, since the banks will claim FICO is only one factor the banks will consider.

So, to recap: most Americans feel they are doing worse than they were five years ago. The quantitative easing program is ending, which will result in higher interest rates. And the banks will now use a revamped FICO assessment to ostensibly lend more money to more desperate people.

Sounds like the perfect economic storm of 2007 is again brewing. People are in desperate need, lending standards will be loosened, and the interest rates on any money that banks lend will climb.


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