Outside Economics

One Trillion in Debt and Counting...

Posted by Wendell Brock, MBA, ChFC on Fri, Dec 18, 2015

A couple days ago the Federal REseve raised its short term rate 0.25 points, on that note we hope tha it has not spoiled your holidays! Americans seem to love debt, as many use debt for major purchases and economist use debt as economic indicators. While Americans are paying off their debt in one area they are increasing it so much in another area that economist are now following that debt much more closely…


Following the financial crisis of 2008-2009, bank loans and financing became very challenging for U.S. consumers. As the job market has improved over the past few years, more Americans are working, thus allowing them the ability to pay down left over debt from the crisis.Current-Loan-Accounts.jpg

Demographically, most loans are taken out by younger consumers with growing families in the prime of their spending and borrowing years. Improving debt, characteristics of younger consumers, may also lend to better saving and investing behaviors as finances are managed better.

Delinquencies are a gauge of how well borrowers across the credit spectrum are able to repay their loans on a timely basis. Should delinquencies rise, it is an indicator of various factors, including weakening job market, lower wages, increased household expenses, and overextended consumers.

Over the past several months, delinquencies have dropped with an increased number of consumers paying their debt off on time. Such a pattern is an encouraging indication of improving consumer dynamics.

Auto Loans

Rather than struggling to get approved for a new home loan or refinance, Americans are instead financing cars, where getting a loan approval is easier. The ability of fresh loans available to car buyers is also helping to elevate auto sales dramatically throughout the country.

This past quarter, auto loans, outstanding reached $1 trillion for the first time ever. The amount of total auto loans is rising faster than the amount of mortgage loans.

The average car loan is approximately $21,700, with the average monthly payment at $400. The average purchase price stands at about $32,529.Number-of-Loan-Accounts.jpg

As expensive as some automobiles have become for some people, an auto loan is the only method of actually affording the pricey cars of today. Over the years, several automobile companies have established their own financing thus allowing buyers to buy and borrow directly from them.

Economists have always placed a value on home mortgages, an indicator of economic growth, since homeowners must eventually furnish and maintain their valuable purchase. But now, the amount of auto loans being made is tracked by economists as yet another indication of consumer spending ability. An improving job market and stable wages have allowed consumers the ability of obtaining larger loans on more expensive cars.

Years ago I learned that most people (more than half) purchase a new car within six months after buying a house. I have watched many people do this over the years and then watched the struggles afterwards. Debt no matter the purpose is a cruel task-master. I encourage everyone to get out of debt, however fast you can, get out and stay out of debt.

I remember the old silly joke: if you are going to spend money on a car vs. a house spend it on the car, because you can always sleep in a car, but you can’t drive a house!

Source: Federal Reserve



The best pillow is a clear conscience. Merry Christmas

Topics: debt, auto loans

China Trades Places; Learn the Two Biggest Income Tax Problems Coming This Year

Posted by Wendell Brock, MBA, ChFC on Wed, Dec 09, 2015

Last week I talked about China and the placement of China’s Yuan in the IMF basket of currencies. This week China is back in the news with it becoming our largest trading partner. Additionally, my good friend Keith Earl, CPA offered a two major income tax issues that tax payers will face this coming year. It is best to get a handle on these issues before they become problems, costing time and money.

China surpassed Canada as America’s biggest trading partner this past quarter as reported by the U.S. Department ofChina-Canada-U.S.-Trade.jpg Commerce. Through September 2015, China had more import and export activity with the United States than Canada, the first time to ever occur. Total trade in 2014 with China and Canada was close, but now China has clearly eclipsed Canada as the primary trade partner with the U.S.

As America’s neighbor to the north, Canada and the U.S. share similar languages and customs, that have allowed for an ample trading relationship. The enactment of the North American Free Trade Agreement (NAFTA) in 1994 expanded America’s reach into Canada, as well as Canada’s into the U.S. Even with China’s distance and cultural differences, it has still been able to build and expand its trading relationship with the U.S. to new levels.

Imports from Canada into the U.S. include petroleum and automobiles, while the U.S. is a major exporter of grains and other food products to Canada. The U.S. is an exporter of food and capital products to China, with Chinese imports into the U.S. primarily led by computers and electronic devices. For more info on China's economic growth and the world market see this article: China, Currency and the World Market

From Keith…

I recently attended the tax update provided by my tax software company.  I learned a lot and wanted to share a couple of points to help each tax payer better prepare for the 2015 income tax filing season that begins shortly after the New Year. 

Identity Theft: We spent more time than ever before reviewing identity theft and the epidemic it has become related to income taxes.   Identity theft affected just about every tax practitioner office that attended the update. I had tax clients whose identity was compromised.  personal-income-tax-e1377245692746.jpg

There is an expanding identity theft industry mostly based overseas.  They acquire tax identification numbers from various sources and then prepare and electronically file income tax returns for these taxpayers, generating millions of dollars in refunds before the actual taxpayer is even ready to file their return.  

The IRS has made this one of its top priorities to stop this theft and to protect the American taxpayer.  Preparers like myself are doing all we can to prevent it too. In fact we are being tasked with the responsibility to maintain security of the data provided to us by our clients.  Our office is doing all we can to keep all data secure and confidential.   

There are some additional things that can be done for any taxpayer who wants to file a form with IRS to request that no electronic return can be filed using your social security number unless an IRS provided pin number is also used.  There are pros and cons for doing this.

The time to get this pin number is NOW before the tax season begins and identity thieves begin filing returns using your number.  

The conference discussion leader stated that it is not a question of whether your identity has been stolen.  The only question is how soon a thief will use that identity to create havoc in your life. 

The Affordable Care Act: The other topic of interest was the topic of the Affordable Care Act “Obamacare”.  Last year (2014) was the first year that reporting on tax returns regarding health insurance was required.  

There were many errors throughout the system in reporting health care information on 2014 income tax returns.  The instructor shared some statistics and some of the IRS enforcement activities that are associated with this new law and income tax filing requirement.  

Some taxpayers who obtained insurance from the online exchange got discounts on their insurance that should have been reported, but for which the taxpayers were unaware and did not correctly report.  Some taxpayers, especially senior taxpayers, may not have even filed a return because the only thing they needed to report was the healthcare subsidy they received.  And they had never had to file this in previous years.  This may be affecting you, your parents, or older relatives.  

If you have insurance from an exchange and got assistance with the premium, there is a good possibility that your insurance information was not 100% accurate on your tax return.  The IRS is matching tax returns with insurance policies and will advise insurance companies to take away the discounts that many citizens thought they had knowingly or not.  

The result is that some people on the insurance exchange may see their insurance rates go up in a huge way come January 1st. 

The people most likely to have this negative experience are senior citizens, such as your parents or grandparents, who got a subsidy, but maybe didn’t even file a return because their income was low enough that they would not have been required to file a tax return.  Because of the Affordable Care Act, they maybe were required to file a return just to report their insurance. 

If either of these issues are affecting you or someone you know, we are here to help in any way we can.

Sources: Dept. of Commerce, U.S. Census Bureau; Keith Earl, CPA



Money flows from those who don't manage money to those who do. - Anonyms

Topics: Identity Thieft, China, Obamacare

China's Yuan Is Now In The IMF Basket

Posted by Wendell Brock, MBA, ChFC on Wed, Dec 02, 2015

When smaller, less developed countries from around the world need to exchange their currencies into a more utilized and liquid currency, they utilize SDRs (Special Drawing Rights), essentially a basket of currencies. Created by the IMF in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and the U.S. dollar, SDRs have evolved to over $200 billion in value.

The SDRs are currently made up of four currencies, the U.S. dollar, the euro, the yen, and the pound. Over the past few years, China has been aggressively bargaining to have its currency, the yuan, included in the SDRs. Such an inclusion is considered a validation by the IMF that a country’s currency is internationally recognized and accepted.


In an effort to strengthen the world’s recognition of its currency, China has entered into currency swap agreements with other countries, bypassing the U.S. dollar as the reserve currency. Currently there are fourteen nations that have signed currency swap agreements with China allowing them to clear their trades using the yuan as the main currency. Those countries include: Argentina, Belarus, Brazil, Canada, ECB, Hong Kong, Iceland, Indonesia, Malaysia, Singapore, South Korea, Thailand, the United Kingdom, and Uzbekistan.

Monday, November 30th

The IMF announced that the Chinese yuan will be included in the SDRs basket of currencies. It is expected that the demand for the yuan will not increase much considering the currency controls of the Chinese government. Central banks have begun acquiring the yuan but they don’t expect to have a major increase in demand.

Central banks don’t use the SDR as a yardstick for determining the composition of their foreign-currency reserves. These are much more heavily influenced by cross-border trade, said Karthik Sankaran, a director of global strategy at Eurasia Group.

Before the currency swap agreements all trading with these countries and China were conducted with U.S. dollars as the reserve currency. While many policy makers don’t believe that the yuan will supplant the U.S. dollar anytime soon, no one thought the Chinese economy would grow to become as big as the U.S. economy anytime soon either.

The inclusion of the yuan in the SDRs Basket is a big deal to China, they view it as placing their currency value equal to that of the other currencies in the Basket. It’s a bit like letting the camel poke its head in the tent! Soon enough the entire camel is in the tent.

In our competitive world economy, China will continue to work at becoming the world’s largest economy and they will compete to become the world’s reserve currency. As the country with the largest population, they want to be a super-power on the world stage and set world economic standards. (Remember they are still a communist nation with limited human rights.)

With the fall of Bretton Woods system and increasing availability of credit through international banking institutions, SDR’s are not used as much as they were when they were first developed. After all we have left the gold standard back in the early 1970’s, which in essence changed precious metals (gold and silver) from a common median of exchange (controlled currency) to a commodity, greatly increasing their value and volatility, particularly as the currencies have been devalued over time.

What are your thoughts of this new development in the world’s economy?

Sources: IMF



"Peace and contentment come into our hearts when we save a portion of our earnings and avoid unnecessary debt."  - Ezra Taft Benson

Topics: Precious Metals, Yuan, SDRs, China, Currency


Wendell W. Brock, MBA, ChFC

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