We’re on social media. In and of itself, that may be a bad idea these days. But we keep seeing a few things that pique our interest, and as they’re ideas and theories that are in our field, we take a deeper look.
One is the idea that the economy isn’t really that bad. “Consumer spending is up! Look at the number of new mortgages and new home sales!”
Both of these things are true, but like many things we see on social media or in the news, they deserve a bit of context.
Consumer spending, while up, only grew by 1.9% in July, which is significantly lower than the 4-to-6% most analysts expected. People still need to shop, after all. There are groceries, basic household goods, and that blown-out sneaker will need to be replaced. But the pandemic has left a sizable dent in the revenue of small businesses across the country, and that impacts where we can spend money and where we can work to pay for those new sneakers.
When it comes to home sales and mortgages: again, true. One of the mechanisms the Federal Reserve uses to control our economy is raising and lowering interest rates. When we say “control,” that doesn’t allude to some nefarious plot by the Federal Reserve. When times are great, there is a headlong rush to make hay while the sun shines. The Federal Reserve may raise interest rates to act as a sort of governor on the economy. “Let’s make it a little more painful to borrow money and give everyone a moment to catch their breath before this gets out of control.” In times like today, they lower the interest rates. “Let’s make it a little easier to borrow money. This will avoid a mass panic and give everyone a moment to catch their breath.”
If you own a home or have the means, these lower interest rates make it a particularly attractive time to buy a home or refinance.
Another thing we see on the internet argues that consumer bankruptcies are down, so we’re all good.
Again: true, but needs context.
First, “consumer” in this context means every day folks like you – not businesses. And to be certain, bankruptcy helps to meet a financial need. But the process of bankruptcy is a legal one. As a result of the pandemic, many courts have curtailed or slowed their case schedules, so debt collection actions aren’t as prevalent. But bankruptcy courts are open for business – at least virtually..
Secondly, many are feeling a false sense of relief. Emergency bills and legislation have stalled efforts at foreclosure and eviction. Relief and stimulus packages at the local, state, and federal level have provided consumers with just enough of a cushion that they don’t need to file for bankruptcy…
When reading through the feeds of Facebook, Twitter, and the like, much of what we see is opinion. Everyone has one. We also see links to articles from otherwise respectable news outlets that would seem to bolster the case that all is well.
We like to use these opportunities to exercise an experiment: “We disagree, so let’s ask the Google.”
If you were to Google “wave of bankruptcies” you would see informative articles from trustworthy sites like Forbes, Bloomberg, and the Wall Street Journal. But what you would also see are articles from local outlets in San Francisco, Houston, Duluth, Kansas City, and Bangor Maine, all saying the same thing: “Prepare for the coming wave of bankruptcies.”
These local shops are going to reach a point-of-no-return and many will finally shutter. Folks at home will quit buying sneakers. The Federal Reserve will run out of percentage points to use towards propping up the markets. The government may or may not extend relief payments. And courts will resume normal business hours.
We’re lawyers, and have seen a lot, and so tend not to panic. And we’re not suggesting that you begin to do so.
But we advise our clients to do the same thing today that we advised our clients to do when we first started helping people through bankruptcy: Plan ahead. Think things through. Be cautious.
It’s a scary and uncertain time, whatever your level of financial stress. But we can help you assess that stress, and help determine what methods might relieve it.
And that you can believe.