Payday Loans Putting Customers Into Debt Spirals

Pay-day loans are now being widely used across the UK, in fact 2 Million people across the UK were using pay-day loans in 2011. Most of these businesses promote themselves as helpful organisations which are there to lend a hand when their customers are in need. The truth is that most of the companies issue loans which have interest rates of more than 1000% APR, this is causing many customers to go into debt spirals as they cannot afford to payback these huge interest rates.


Due to the current economic conditions in Britain such as the high unemployment and increasing inflation, it has left many citizens "cash strapped". The CPI index has increased massively since 2011 and unemployment has also increased. This is causing many people to not have sufficient funds to pay for house bills and also basic goods.

In a recession these type of businesses thrive, as they are preying on the cash strapped citizens who need money quick in order to pay for bills. These companies also prey on uneducated citizens who don’t understand the basic principles of interest rate loans. Even if the company's show the interest rate in plain view many people over look that as they might not be educated or they are too caught up in their own economic problems. These companies may promote a "cuddly" corporate image as caring companies but they are only after the profits they can gain from unsuspecting customers.

The pay-day loans industry has expanded massively during the years of the recession and is now worth a staggering £2.2B. These companies may boast big profits to their shareholders but it is only by charging hideous interest rates to the uneducated people of this country that they are able to create such high profits.

These companies have caused many customers to get into huge debt spirals, where they owe sums of money sometimes up to £10,000 for only taking out a small amount. The reason why this is occurring is because when unexpected customers take out these loans there are not understanding how much they will have to pay back, this causes a shock to the customers and as they probably cant afford the repayments they have to take out another loan. Before too long this puts customers into serious debt problems which causes many people to lose their possessions or even in some cases commit suicide

These companies have been allowed to be set up as there is actually no restriction on the interest rates which these companies can charge. As long as they show how much the interest is on the loan then its okay for them to charge it.

Sadly these are the types of companies which sprite up in these harsh economic times. I believe that the only way forward is more financial education for both adults and also children. This will mean that future generations will be more aware of these companies and will think twice before taking out pay day loans in the future.

I also believe that if these companies continue to operate there should be more transparency across the whole industry. As all customers should be told the exact amount they will have to pay back including the interest.


Daniel Butler

References : Guardian, Trading Economics, BBC ,sqmagazine

Workers leave Spain as unemployment continues to increase and recession worsens

Worsening Economic conditions in Spain is causing many people to leave the country in the pursuit of work somewhere else. Many of the country's population is now unemployed and many businesses are going bankrupt everyday.

There are some staggering data coming out of Spain with more than 50% Youth unemployment and also total unemployment is at 24%. This is causing many people to worry about Spain's Economic future because if half of the young population is unemployed they are not gaining the skills which will be necessary if the country does recover.

Bloomberg reported earlier today (25th June) that Spain’s population has fallen from last year, this is the first time the population has fallen since 1971. This has been caused by the harsh economic conditions has many people are leaving the country to look for work somewhere else.

The graph above shows the GDP growth rate of Spain and it shows that Spain has seen six consecutive quarters of negative growth.With the worsening Economic conditions I do not see these statistics improving within the near future.

Spain’s economy has been another victim of a property boom, in the years leading up to 2008 Spain’s GDP continued to grow, however this was underpinned by a housing bubble which was financed through cheap loans too risky clients all across the country.

Housing prices increased 44% from 2004 to 2008 but since the underpinning of the property boom they have tumbled more than a third. Due to the long periods of growth Spain actually had very little debt but because of the harsh economic problems they are experiencing they have had to borrow a large amount of money from the bond markets.

However all of this borrowing has put Spain into even more trouble I believe, this is because eventually Spain will have to pay this money back, but with a declining economy and large unemployment, where are they going to get the tax revenue to pay back the loans?

I believe that without a radical solution from the Spanish government, Spain will default on its loans in the coming years. This because with a declining economy and huge unemployment Spain will find it very difficult to repairs its debts.


Daniel Butler

Sources: Yahoo Finance , BBC news , Bloomberg , Trading Economics

Virtual Stock Portfolio Update Week 2

My YAHOO fantasy trader account is currently running a 0.90% profit which is much lower than my targets. This has generally been caused by the recent news from China where they are now ending their era of cheap credit. Due to this news, markets world wide where triggered and began to fall, this is because investors are less optimistic about their Chinese stocks as there is less credit available in the economy which may impact growth.

The graph above shows the Shanghai Composite SSE over the past 5 days, it can be seen that when the news broke on Monday it sent this index down all the way past the 1900 point mark.


Before the news of Monday my portfolio was on a steady curve upwards, this is due to the previous week where I purchased small stakes in companies which where trading low.

The graph above is of my portfolio, it can be seen that due to the Chinese Market news which broke on Monday my portfolio has been effected and is now down to a similar level displayed last week. However currently (24.06.13) The FTSE 100 is seeing gains of 0.98% and is up 59.28 points which is helping some of my positions to recover.

In the coming weeks I will look to see whether the markets will shake off this bad news and start stabilising. This is because with all this bad news breaking most stocks are very volatile especially for the short term.



Daniel Butler


Sources : Yahoo Finance

UK Government Continues to borrow despite the huge deficit

It has been reported by the BBC that the UK government has increased its borrowing from the bond markets even further in 2013. Despite the UK's huge government debt which is now equal to 75% of GDP.

The governments debt to the bond markets has been heavily increasing in the past five years (see graph). I believe that the UK government should definitely ease off the borrowing as the deficit is now becoming too large to comprehend, according Trading Economics the UK ranks 13th in the world for total to debt to GDP.

The UK's credit rating has already been downgraded this year as many investors and rating agencies are now fearing that the UK will have trouble paying back its debts in the future. This fear is starting to become apparent as the UK's growth has been almost stagnant for a number of quarters in the previous years, this means that there is little growth, with less growing businesses there will be less revenue for the government unless they increase the tax rate. But an increase in taxes will mean businesses will be less likely to grow anyway, so the government is almost "clutching at straws" with what to do with the economy.

The unemployment rate has decreased this year but it is still very high, and this is causing the government to spend even more supporting the jobless and this is causing higher tax rates for businesses.

The UK government also have to be wary of inflation, mainly the CPI index which has increased even further in the past year (see graph). The CPI index now stands at 126 points and has increased largely in the previous year, this is causing consumer confidence to decrease as less people are spending and this in turn is creating a ripple effect which is effecting many businesses.

More borrowing is a bad sign for the UK economy but if the government wants to continue funding the welfare state they will need to either borrow or increase taxes further. But they cannot increase taxes as the economy is not growing enough to accommodate it. The truth is with this stagnating economy the government can longer support the welfare state and also spend money on improving the economy without borrowing.

The public sector net debt now stands at £1.19 trillion which is the total of how much the country owes. The UK's economic outlook is not looking promising as the government will likely have to start paying higher interest on their loans, whilst still trying to fund the welfare state with an economy which is running at a trade deficit.

With increasing rates the government will likely stop borrowing and look for other sources of funding, this could be either more monetary policy or higher taxes. This is because the government can no longer the lower the bank of England's interest rate in order to inspire growth as its already at its lowest for more than 30 years.

The truth is in order to keep the welfare state running the UK will either continue borrowing or start introducing heavier taxes on business's across the UK despite the Economic impact that may cause.



Daniel Butler


References : BBC and Trading Economics :/http://www.tradingeconomics.com/


  

Can the US Economy survive without the Quantitative Easing ?

The United states media have been reporting for a few weeks now that the fed will begin to tapper its bond purchasing programme and stop trying to stimulate the markets with short term growth. The question is has Quantitative Easing gone on for too long and has the US become reliant on market stimulation from the fed ?

Ever since 2010 the Federal Reserve has been increasing its bond purchasing programme up to £85 Billion per month in order to quickly get cheap money into the system and lend it out to business so they can grow. Quantitative Easing seems a relatively good plan at a first glance as it quickly makes markets happy as everyone is more optimistic, but what many people haven’t noticed in the past is that QE can cause many problems for an economy (see article of germany QE :click here).

  

As this monetary instrument has been executed for so long and at a massive rate (see graph ), many investors and economists are starting to state that the markets are becoming to over-reliant on this stimulation in order to grow. Without this constant intervention of the federal reserve investors believe that many stocks will depreciate in value as everyone is less optimistic due to lack of stimulation by the fed.

However this may not be bad thing , this is because Quantitative Easing has in many cases caused the stock market to be over-valued and prices are much greater than they should be. when the Fed does start to tapper its purchasing programme we will likely see the markets correct themselves and stocks will return to moderate prices.

Already the plans of the federal reserve have started to effect the markets with the DJIA finishing down the day the news broke. Many investors are fearing that the stock market will correct itself and send stocks down to their correct values if there was no stimulus. Due to this many investors have probably adjusted their portfolios away from the US and looked for defensive investments such as the government bonds which finished high on that day.

Dow Jones Industrial Average June 19th 2013

The stock market has seen some bad news in recent weeks with emerging markets and the federal reserve. but I believe that tapering Quantitative Easing now is the best decision as the US Economy according to low unemployment and increasing growth has started to recover. I believe that it is important for the economy to survive and grow without the Feds constant stimulus which only inflates stock prices creating an illusion of growth.

I also believe we may see this happen in other countries in the future especially emerging markets where central banks have stimulated their economies to attract investors, the banks will then have to taper their QE in order to keep the currency at a good level which causes their markets to correct themselves.

Daniel Butler


Sources : Marketwatch, Yahoo Finance , http://theeconomiccollapseblog.com/archives/quantitative-easing-did-not-work-for-the-weimar-republic-either

Financial History : Germany Quantitative Easing 1920s

Quantitative Easing can be a very dangerous monetary instrument when used excessively, there have been many cases where Quantitative Easing has brought an economy to its knees but today I will be writing about Germany’s Quantitative Easing of the 1920s.

Burdened by huge World War 1 Debts and a poor economy the German Government decided to print massive amounts of money in order to repay debts and to hopefully revive the economy. It all sounds very well until the government started printing excessively and increased the money supply to astronomical levels (see graph). Due to this massive money supply the currency quickly started to depreciate and the consumers had to offer up more and more notes for every day goods such as bread and milk.

http://2012books.lardbucket.org/books/economics-theory-through-applications/section_30_02.htm

In 1922 Hyperinflation started to kick in and Germany's inflation increased massively as the currency was worth so little. Citizens had to offer up large amounts of notes in order to purchase everyday goods. By the following year inflation was up to 433 percent this is unprecedented by today’s standards, along with the increasing inflation rate the money supply continued to increase up to 52 percent on the previous year.

In 1923 Germany's inflation rate reached its peak at over 6,800 percent, this happened because the German government would not stop increasing the money supply despite the inflation rate. At this point the money supply and also the inflation rate was doubling day on day and the prices of basic goods would increase every day due to the decreasing value of the German mark.

In December of 1923 the value of the German mark decreased to the point that 4 trillion German marks was equal to 1 US dollar. This is compared to April 1919 where just 12 German marks was equal to 1 US dollar. Quantitative Easing had wrecked the German Economy in just 4 years , inflation was massive, the currency was worth nothing more than the paper it was printed on and this brought the way for massive unemployment in the coming years, in fact by 1932 5.1 Million people where unemployed in Germany which was over 30% of all the workforce.

Quantitative Easing is now being used regularly by many central banks across the world economy in order to hopefully put growth back into the system. The federal reserve in the US has continued its policy of massive quantitative easing for a number of quarters. This is having bad effects of the US dollar and in fact the dollar has already depreciated a massive amount since the 1900's and this was without QE (see graph below).

http://www.comparegoldandsilverprices.com/dollar-devaluation-since-1913/

Considering what happened in Germany the federal reserve should be very wary of their QE plans. As they have already stepped up the gear and have added over 1 trillion new US dollars into the system and with every dollar that is added the currency is worth less. This could cause a large depreciation to the US dollar in the coming years unless the fed starts to hold back on its monetary policy.

http://theeconomiccollapseblog.com/archives/quantitative-easing-did-not-work-for-the-weimar-republic-either

The graph above shows just how much money the federal reserve has started to pump into the economy in an attempt to revive it. I believe this will cause the dollar to depreciate even further.

Daniel Butler

sources

http://2012books.lardbucket.org/books/economics-theory-through-applications/section_30_02.html

http://theeconomiccollapseblog.com/archives/quantitative-easing-did-not-work-for-the-weimar-republic-either

http://www.comparegoldandsilverprices.com/dollar-devaluation-since-1913/

Smith and Wesson sales hit all time high but gun crime continues to decrease ?

On April 29th 2012 Smith and Wesson reported a 20.3% increase in revenue from $342M in 2011 to 411M in 2012. The Guardian and other newspapers are also reporting that Smith and Wesson this year saw their revenue for the financial year already increase to $588M. See the graph below which shows the revenue for Smith and Wesson over the past 4 years.

source : Google Finance

However increasing gun sales in the US does not mean an increase in gun crime, when you take a look at the statistics they show that deaths caused by gun crime is actually decreasing year on year. Even though some of the mainstream media are calling for a partial gun ban in the US and also reporting on the disasters of Colorado and Sandy Hook, however they do not add as much coverage to the decreasing gun crime numbers.

These statistics probe the question that does more guns mean less gun crime?, This is because in a society where there is more guns, criminals are less likely to commit gun crime as ordinary citizens can arm and protect themselves against the criminals.

Smith and Wesson also saw a sales spike when the shooting in Colorado was reported, this suggests that more people are buying guns in order to protect themselves if a similar disaster where to happen again. Another spike was also seen when President Obama was re-elected as buyers feared that the president was going to clampdown on firearms.

The graph below shows that homicides caused by firearms has decreased massively since 1993. This graph also shows that all firearm deaths are decreasing and the slight increase in the past five years is probably due to the increase in suicides caused by firearms. 

In order to truly factor in the massive surge in gun sales, next year's crime statistics will be vital and they will show truly whether more guns means less gun homicides. I don’t believe that having more guns will stop incidents such as Sandy hook from happening again but I do believe more guns will decrease gun crime overall. I think that the answer lies in education and America needs to introduce new programmes and educate its citizens on gun safety and how dangerous guns can be in the wrong hands.

Education is needed because guns don’t kill people its people that kill people, a gun is just an inanimate object and it takes an uneducated person to use it in the wrong way.


Daniel Butler

Sources: Yahoo Finance , Google Finance , Guardian and CDC's National Certificate for injury prevention and control web-based injury statistics.